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Copyright 1916 By 
The University of Chicago 

All Rights Reserved 

Published September 1916 

Composed and Printed By 

The University of Chicago Press 

Chicago. Illinois. U.S.A. 




>i This volume of exercises and questions is for use with the author's 

;^ Principles of Money and Banking and is designed to serve as an aid 
in the working out or elucidation of those principles. It is coming 
more and more to be recognized by teachers of economics that if 
their work is to afford a genuine discipline to the student the text 
and lecture must be supplemented by an abundance of interpretative 
questions and concrete problems. Such aids are of course especially 
necessary where the basis of the course is not a formal text, but a 
book of readings made up of source materials, charts, tables, argu- 
ments, and more or less conflicting opinions and points of view. 
Indeed, with such a book they are indispensable. 

The exercises and questions in this volume have all been through 

the fire, having been used in mimeographed form in my classes for 

'Sy three years. Indeed, the first two-thirds of the volume has been 

^ completely reorganized several times. I have followed the practice 

'^ of making the revisions immediately following the class periods while 

the difficulties and problems suggested by the class discussions were 

fresh in mind. It is, of course, a common experience that certain 

>j> questions prove ambiguous, that others carry the student too far 

afield or into problems that cannot be analyzed on the basis of ma- 

7 terial already covered, and, even more important, that the arrange- 

V ment of the questions is pedagogically poor or unsound. I do not 

flatter myself, however, that the revisions the book has imdergone 

in actual use have resulted in a high degree of standardization even 

for my own use, much less for the purposes of other teachers. In 

fact, I seriously doubt if any great amount of standardization is 

either possible or desirable, for I am a strong believer in individuality 

in instruction. Ideally, every teacher should have his own book of 

questions, regardless of the text used. 

It is not my thought that these exercises and problems will prove 
of any particular value in connection with any text on Money and 
Banking. They are in the main based very closely on my Principles 






of Money and Banking, and a considerable percentage are iinintelligible 
except by reference to this volume. The sectional headings follow 
the precise order of those iij the volume of readings. An appendix con- 
tains some general bibliography and a list of topics that may be used 
in assigning term papers. My idea has been to make these topics 
supplement the material given in the volume of readings. The 
bibliography in each case is not exhaustive; I have merely tried to 
give the better and more available sources of nxaterial. 

H. G. M. 

University of Chicago 
August 15. 191 5 



I. The Pecuniary Organization of Society i 

A. The Nature and Functions of Money i 

B. Money, Capital, AND Wealth 2 

* C. The R6le of Money in Industrial Society .... 3 

11. The Origin and Development of Money 4 

A. Origin OF Primitive Money 4 

B. Forms of Primitive Money 5 

C. The Use of Metals as Money S 

D. Principles of Coinage 6 

III. Early Expedients for Increasing the Currency 8 

rv. The Standard Question: Bimetallism 9 

A. General Principles 9 

B. History OF Bimetallism 11 

C. Bimetallism IN THE United States until 1873 ... 12 

D. International Bimetallism 13 

V. The Standard Question: Government Paper Money ... 13 

A. Advantages of Paper Currency 13 

B. History of Government Paper Money 14 

(i) Some Early Experiences 14 

(2) Paper Money as a Means of War Finance .... 15 

(3) Paper Money and Subsidiary Currency 17 

C. The Aftermath of the Greenbacks 18 

D. The Regulation of Government Paper Money ... 19 


VI. The Standard Question: The Silver Movement in the United 

States ' 20 

A. The Agitation for the Recoinage of Silver ... 20 

B. Results of the Silver Agitation 24 

C. The Close of the Silver Controversy ..... 27 




Vn. The Standard Question: The Control of Price Levels ... 28 

Vm. The Existing System of the United States and Principles of 

Regulation 29 


I. The Various Forms and Services of Banking 31 

11. The Natur% and Functions of Credit 32 

in. Instruments of Commercial Credit ^4 

IV. Principles of ''Commercial" Banking 37 

A. Analysis of Banking Operations and Accounts ... 37 

B. Analysis of Bank Loans 41 

(i) Introductory 41 

(2) Commercial Paper 41 

(3) Collateral 45 

V. Relations between Banks 47 

A. Within a Given City 47 

(i) Loaning Relations 47 

(2) Clearing-Houses 48 

B. The System as a Whole 50 

(i) General Relations 50 

(2) Periodic Tension and Ease in the System .... 52 

(a) Seasonal 52 

(b) Cyclical 53 

VI. The Regulation of Banking 56 

A. Governmental Supervision 56 

B. Regulation of National Bank Operations .... 57 

C. Regulation of State Banking 58 

D. The Regulation of Note Issues 59 

VII. The Federal Reserve System 63 

A. General Description of the System 63 

B. The Practical Working of the System 64 

C. Relation of the System to Other Banking Institutions 67 


. CONTENTS - xi 


Vm. Co-operative Banking Agencies 68 

A. The Loan Sharks 68 

B. Co-operative Institutions 69 

C. Building and Loan Associations 70 

IX. Agricultural Credit 70 

A. Short-Time "Commercial" Credit 70 

B. Long-Time Investment Credit 73 

X. Investment Banking Institutions 75 

A. Savings Banks 75 

B. Investment Banks or Bond Houses 78 

XI. The Interrelations of Financial Operations 79 

A. Investment Operations OF "Commercial" Banks . . 79 

B. The Federal Reserve System and Investment Opera- 
tions 82 

C. Financial Concentration and Control 84 

Bibliography 87 



A. The Nature and Functions of Money 

1. With barter there must be a "double coincidence" in order to 
effect an exchange. Explain by a concrete illustration. 

2. Mention as many cases as you can of the existence of barter 

3. Suppose a community having 1,000 conunodities to be ex- 
changed. If a system of barter, only, were in use, how many value 
ratios would there be ? If a standard or common denominator of value 
is in use, how many ratios is it necessary to know ? 

4. Are checks, notes, and drafts forms of money ? 

5. To be money is it necessary that the commodity chosen be 
made legal tender ? 

6. It has been suggested that in order to be money it is necessary 
that the commodity chosen be accepted without the acceptor's 
having a present demand for its use. Do you agree ? 

7. In what ways would the introduction of a standard for express- 
ing value ratios affect the organization and development of industry ? 
(See selections Nos. 27-31.) 

8. Do you think that intertribal or international trade would be 
possible without a conunon denominator for expressing values ? 

9. Is the common denominator of value unvarying like a yard- 
stick? Does it differ fundamentally from an ordinary unit of 
measure ? 

10. Precisely what is the function of a medium of exchange ? 

11. Do you agree with the idea that the full function is not per- 
formed until an exchange of goods has been effected? What two 
functions might be performed by money in making this complete 
exchange ? 

12. Is the standard money usually the medium of exchange? 
Can you give good reasons why substitutes for the standard money 
should be devised ? 

13. Do you believe that the function as a medium of exchange 
is more important than as a common denominator of value ? 

14. In what ways does the use of a medium of exchange promote 
industrial development ? 


15. Does the serving as a store of value constitute a real monetary 
function? Are not other things than money often used as a store 
of value ? 

16. How does Taylor distinguish between the store of value and 
his second step in the medium of exchange function? Is the. dis- 
tinction a valid one ? 

17. How does the standard of deferred payments differ from the 
standard or common denominator of value ? 

18. Does the same money commodity serve both functions? Is 
this necessarily the case ? 

19. Why was the function as a standard of deferred payments 
of comparatively late development? Is it therefore a result rather 
than a cause of industrial progress ? 

20. Is the common denominator of value related to the problem 
of price fluctuations, or is it only the standard for deferred payments 
that has to do with this problem ? 

21. Have we ever reached the ideal in the matter of a standard 
for deferred payments ? of a commwi denominator of value ? 

22. How do price fluctuations impede industrial activity? (See 
selection No. 26.) (The complete answer to this question cannot be 
given at this place. It is, however, revealed in the study of monetary 
history in succeeding chapters.) 

23. Suggest ways in which rising or falling prices affect various 
classes in society. 

24. Which of the various functions of money do you imagine 
have given rise to the most legislation ? to the most controversy ? 

25. Which function is most discussed at the present time? (See 
chap, vii.) 

B. Money, Capital, and Wealth 

1. Do you agree with Lane that money is the motive most funda- 
mental to human activity ? 

2. What faulty analysis do you find in Lane's argument? 

3. !For what purposes was gold shipped out of Germany in the 
time of Luther ? 

4. Do you imagine that Luther's views on the disappearance of 
gold and silver were influenced by his objections to extravagant 
expenditures for luxuries? 

5. What is mercantilism? Were the mercantilist writers econo- 
mists in the modern sense, or did they have personal ends to be 
served by favorable trade balances ? 

6. Can you refute the argument of the mercantilists from a 
theoretical standpoint ? from a practical standpoint ? What do you 
mean by theoretical and practical standpoints ? 



7. Does it seem to you that Price's criticism of the business 
viewpoint is just ? 

8. Criticize Poor's reply to the economists. How do you account 
for the view that he manifested ? 

9. In your readings of the daily press do you find frequent mer- 
cantilist doctrine such as that in O'Laughlin's statement? Have 
such writers thought through the problem, have they been taught such 
doctrines, or are the doctrines mere social heritages ? 

10. Why is it that money is so frequently confused with capital 
and wealth? 

11. Do you agree with Gide that the confusion can be explained 
by the difference between the individual and the social viewpoint ? 

12. Do you feel that the quantity of money in a community is a 
matter of perfect indifference ? 

13. May too much money be objectionable as well as too little ? 

14. Can anyone really have too much money to be prosperous ? 

15. If the pioneer settlers of America had possessed plenty of 
capital and wealth, do you think they would have been so desirous 
of more money ? With greater wealth would more or less money have 
been required? 

16. What did the pioneers wish to do with more money ? 

C. The R61e of Money in Industrial Society 

1. By "capital accumulation" does one mean the accumulation 
of money or of material instruments of production ? 

2. Without a common denominator of value, or a pecuniary unit, 
would it be possible to develop an accurate accounting system ? 

3. When one saves he compares the present satisfaction to be 
derived from the spending of money with a future satisfaction in 
the spending of the same amount of money plus interest. Without a 
price unit could accurate comparisons be made ? 

4. Without the dollar or "pecuniary unit" how would savings 
be effected ? 

5. Try to imagine a society conducting its banking business 
without the use of concepts such as the dollar, par or market value, 
shares, bonds, etc. 

6. Do you believe that the business man ordinarily thinks of 
money as functioning as a medium of exchange ? 

7. Is it true that money income, or profits, is the dominant factor 
in the organization and conduct of business ? 

8. Do you agree that, practically speaking, the whole oganization 
of the productive machinery of society is based on money computa- 
tions ? Practically speaking, could the distribution of wealth among 


the various factors of production be carried on without a calculation 
in terms of money ? 

9. In fact, which is more significant, money income or real income ? 
Does the pecuniary measuring of values often lead to erroneous con- 
clusions? Give examples. 

10. Without a system of prices how could a business man compute 
the chances of success when undertaking a new enterprise ? 

11. It is said that the law of diminishing utility is responsible for the 
cessation of further production of a given commodity and the begin- 
ning of a new production. Without a means of measuring this falling 
utility could production be promptly varied to meet the situation ? 

12. Has your experience been that most of the affairs of life are 
measured either directly or indirectly in terms of money ? 

13. "Not what a man has but what he w." Which is more 
important, practically speaking ? ideally speaking ? 

14. What is meant by "dollar diplomacy" ? 

15. Do you feel that the carrying over of the pecuniary evaluation 
into non-economic fields is a serious weakness in the monetary system ? 
Does it outweigh the advantages of the system ? Anyhow, what can 
be done about it ? 

16. When we speak of money or price as an organizing force, 
what function or functions of money do we have in mind ? 


A. Origin of Primitive Money 

1. What function of money do you think came first, chronologi- 
cally speaking ? 

2. Is not the use of a medium of exchange dependent upon an 
antecedent valuation in terms of a standard ? 

3. How can anyone find out which function arose, first ? Is it of 
any importance anyhow ? 

4. Which function probably arose first, thestandard for deferred 
payments, or the store of value ? 

5. Criticize Adam Smith's explanation of the origin of money. 

6. Do you believe that Mommsen's analysis of the reasons why 
an indispensable necessity could not become money is sound ? 

7. Does the argument that ornaments were chosen as money 
because of their scarcity and high value disclose the origin of money 
itself, or merely of certain forms of money ? 

8. Do you find from a study of the various forms of primitive 
currency that the ornament argument has a substantial basis in fact ? 
What climatic influences do you note in this connection ? 


9. Compare Menger's and Bucher's explanations of the origin of 
money ? Are they entirely in disagreement ? With which do you 
agree ? 

10. It has been said that the kind of currency in use by a com- 
munity at a given time indicates its stage of economic progress. Are 
there any exceptions ? 

B. Forms of Primitive Money 

1. Do you consider it advisable that a single commodity should 
serve all four functions of money? Or should we choose different 
commodities for different functions ? 

2. What case is cited in the readings showing different com- 
modities serving the different functions ? 

3. When analyzing the requisites of a satisfactory money is it 
important that they should be analyzed with reference to the various 
functions? . 

4. List the requisites of a satisfactory (a) standard of value, 
(b) medium of exchange, (c) standard of deferred payments, (d) store 
of value. 

5. Is it important that the standard of value .be of stable value ? 
Why, if it serves merely as a common denominator of values at a 
given moment of time ? 

6. Could not a valueless commodity serve as a standard of value ? 
Is an irredeemable paper currency in fact such a standard ? 

7. Do these varying requisit\5S for varying purposes conflict in 
any way when we choose a single commodity to serve all four functions ? 

8. For what reasons have we largely given up the use of gold as a 
medivmi of exchange ? 

9. Wliat functions were performed by the following kinds of 
early currency: (a) wampum peage ? (b) beaver skins ? (c) tobacco ? 
(d) cattle ? (e) fishhooks ? (/) shells ? 

10. What was the function of the tobacco notes of Virginia ? 

11. What was the purpose of the attempt to limit the output of 
tobacco in Virginia ? 

12. What weaknesses in general did the early forms of money 
possess (a) as media of exchange ? (6) as common denominators of 
value ? (c) as standards of deferred payments ? (d) as stores of value ? 

C. The Use of Metals as Money 

I. Point out the weaknesses of the following as monetary mate- 
rials: (a) diamonds, (b) platinum, (c) copper, (d) zinc, (e) lead, 
(/) iron. 


2. In any of the foregoing cases do you think an excessive supply 
was a weakness ? 

3. Why should gold have been known to man at a far earlier date 
than silver ? 

4. What qualities of gold and silver do you suppose made them 
"precious** to the savages? 

5. Are these metals "precious" because they are used as money, 
or are they used as money because they are "precious*' ? 

6. In what respect is gold lacking in the requisites of a satisfactory 
money material ? silver ? 

7. How could a nation that did not have mines of gold and silver 
secure the precious metals for monetary purposes? Would tribes 
having precious metals let them go readily in exchange for other 
things ? Compare your answer with Bucher*s argument on the origin 
of money. 

8. In general was the distribution of gold and silver mines such 
as to favor the extensive use of these metals as money ? 

9. Why were both gold and silver early used as money? Why 
did not the same forces that eliminated the baser metals as money 
also eliminate either gold or silver ? 

10. Was the value of other metals too slight to make them desir- 
able as money ? 

11. Was the supply of gold and silver always plentiful for mone- 
tary purposes ? How large a supply is necessary or advisable ? 

12. How do you account for the practical disapjpearance of gold 
during the Middle Ages ? 

13. What causes led to the reintroduction of gold into monetary 
systems in the thirteenth and fourteenth centuries ? 

14. Do you think that there was any definitely conceived reason 
for using both metals rather than only one after 1500? Do you 
think that both metals were needed as money from, say, 1500 to 
1800 ? If so, in the performance of what functions ? 

D. Principles of Coinage 

1. What are the disadvantages in the use of uncoined metals as 
currency ? 

2. In weighing gold how much difference would it make if the 
scales weighed an ounce light ? 

3. Is it more important that the fineness should be stamped upon 
pieces of metals than that the weight should be attested ? 

4. Aside from the inconvenience of constantly weighing unstamped 
pieces of metal is there any good reason for a government certification 


of weight? Do coins as a matter of fact ever weigh less than the 
certified amount ? Why ? 

^ 5. What was probably the first method of coining ? 

6. Does it seem to you that all of the objects that have been 
sought in choosing designs for coins are desirable ? 

7. What are 3ie objections to private coinage ? Are there any 
objections to government coinage ? 

8. What is the standard dollar ? What is the weight of an eagle ? 
What is the number of grains of pure gold and of copper ? 

9. What is meant by the value of gold ? the price of gold ? the 
mint price of gold ? 

10. Is there a market price for gold bullion ? 

11. What is the mint price of standard gold in the United States ? 
of fine gold ? How do you account for the difference ? 

12. Strictly speaking, can there be a premium on gold in a single 
gold standard country ? 

13. A takes 1,000 ounces of bullion to the mint; (a) it is assayed, 
parted, and refined; (b) standardized by the adding of copper; (c) 
manufactured into coin; (d) the government charges i per cent by 
virtue of its governmental power, (i) Which of these expense items 
constitute brassage ? (2) Which constitute seignorage ? 

14. If the government should undertake a, 6, and c without 
charge to the individual, would brassage disappear ? 

15. The face value of 412I grains of standard silver is one dollar. 
The bullion value is about 45 cents. Is there seignorage involved ? 
Is there any brassage ? 

16. What is the mint price of standard silver ? of fine silver ? 

17. A takes 1,000 ounces of bullion to the United States mint. 
Who pays for: (a) melting ? (b) parting and refining ? (c) the alloy ? 
(d) the manufacture of the coins ? 

18. What is meant by free coinage ? gratuitous coinage ? 

19. A takes to the United States mint 20,000 ounces of gold . 950 
fine. The impurities are removed, and the gold is standardized and 
coined. How much will A receive from the mint ? 

20. In the foregoing problem assume the .050 to be all copper. 
How many standard dollars would A receive ? 

21. WTiat is. the fineness of English standard coin? 

22. B takes British gold coins which weigh 10,000 ounces to the 
United States mint. The government assay shows them to be of 
standard fineness. How many American dollars would B receive ? 

23. What is meant by the "tolerance of the mint'' in coining? 
Why is this permitted ? 

24. What is the purpose of the "trial of the pyx" ? 

25. What is meant by the "minimum circulating weight" ? 


26. Who should suffer the loss when a coin is found legally uncur- 
rent on account of abrasion ? Why ? 

27. What sort of coins in the United States are most likely to be 
counterfeited ? 

28. What devices and methods are used to prevent counterfeiting ? 

29. What relation has coinage to the functions of money ? 

30. Can the value of an eagle be different from that of 258 grains 
of standard gold ? How much different ? 

31. What bearing have the following upon the relative value of 
coined and uncoined gold: (a) tolerance of the mint? (b) minimum 
currency ? (c) brassage ? (d) free coinage ? (e) gratuitous coinage ? 

32. Should the government coin gratuitously ? Should it charge 
a seiguorage ? 



1. After reading the various selections try to decide what motives 
for debasing the currency were most common. 

2. Was it a real gain to the sovereign to debase the currency: 
temporarily ? in the long run ? 

3. Do you think that there was frequently a real need for more 
money in England ? 

4. Do you imagine that the desire to increase the wealth by 
increasing the number of pieces of money was a prominent motive 
for debasements ? 

5. Did a debasement result in more money: temporarily ? in the 
long run ? 

6. Is it not true that a gradual debasement that was unperceived 
would constitute a genuine social economy ? 

7. Practically speaking, since many old coins were abraded, was 
it not wise to coin the new ones at the same weight as the abraded 
coins ? What is done now in this matter ? 

8. What is Gresham's law ? Why call it a law ? 

9. If you had the opportunity of paying debts in full-weight or 
light-weight coins, which would you use ? 

10. If you were a merchant and had payments to make abroad, 
would you send full-weight or light-weight coins ? 

11. When debased currency was in use in any country and new 
full-weight coins were issued, what soon became of the new coins ? 

12. If a bulUon-dealer wished to melt, up coins, which would he 
melt, the new or the debased coins ? 

13. Was the objection to the export of specie based merely on 
mercantilist ideas? 


14. Was it not in fact very unfortunate that only the bad coins 
remained in circulation ? 

15. Can you blame the rulers of the Middle Ages for debasing 
the currency ? 

16. In what way did debased currency cause capital to be hoarded 
and industry to be hampered ? With what function of money are we 
here concerned ? 

17. Is it your belief that the "unfortunate state of the currency/' 
whether from debasements or mutilation, was a serious barrier to 
economic progress in the Middle Ages ? 

18. What were the moral consequences of "bad currency" ? 


A. General Principles 

1. When we speak of the "standard question" are we raising 
problems with reference to the common denominator of value or to 
the standard of deferred paymetits ? t 

2. Is there any argument in favor of a limping standard as such ? 
Is there argument in favor of giving it up ? 

3. What difficulties do you find in connection with the use of a 
parallel standard? 

4. Is the purpose of a parallel standard to give a good standard 
or an adequate medium of exchange ? 

5. To what causes would the advocacy of a multiple standard be 
due ? (See chap, vii.) 

6. What determines the demand for gold? Is there a world- 
market for gold ? 

7. If the value of gold should fall in Germany, would there be 
any effect on prices of commodities in the United States ? 

8. "The cost of production of gold, owing to new inventions, 
falls by one-half; the value of gold therefore also falls by 50 per 
cent.'' Criticize. 

9. What is the relation of the durability of gold to fluctuations 
in its value ? 

10. What is the total quantity of gold in existence ? What per- 
centage of this is the annual output ? 

11. To what extent did the ratio of gold and silver fluctuate 
between 1687 and 1870? To what extent between 1870 and 

12. Upon what are the relative values of gold and silver depend- 
ent ? Can these forces be entirely controlled by law ? Can they be 
partly controlled by law ? 


13. When was bimetallism first established? Was its adoption 
due to a reasoned belief in the superiority of such a standard ? 

14. Is it true that when two metals are used the volume of 
currency is not likely to fluctuate so widely as when only one 
is used? 

15. Is the argiunent that bimetallism is advantageous in giving 
a par of exchange between nations using silver and nations using gold 
of any importance today ? 

16. Do you find any weakness in the "scientific" argument for 
bimetallism ? 

17. Would it be possible for Gresham's law to operate in the 
absence of free coinage of both metals ? 

18. Will the law operate in the absence of full legal- tender power 
on the part of both metals ? 

19. May Gresham's law be said to be inoperative if some of the 
dearer metal remains in circulation ? 

20. Does not unrestricted coinage give rise to an unlimited 
demand, and would not free coinage of both metals therefore insure 
an unchanging ratio ? Stated in another way, if the legal ratio were 
fixed at 16 to I when the market ratio was, say, 18 to i, would not 
free coinage bring the ratios together ? 

21. It has been said that until 1873 the commercial ratios of gold 
and silver had varied only about two points in nearly three hundred 
years, and that the wide variation after that year was due only to 
the demonetization of silver by several important countries. Is the 
comparatively slight variation in the former period proof that bimetal- 
lism was successful then ? Why, or why not ? 

22. What is meant by the compensatory action of a bimetallic 
standard? Does it relate to the advantages of bimetallism or its 

23. Will not the prompt action of bullion-dealers as soon as any 
variation in the ratio appears prevent variations wide enough to be 
reflected in general prices ? 

24. Suppose the legal ratio to be 16 to i. Silver falls in value 
so that the market ratio becomes 17 to i. How much profit would 
there be in retiring a $20 gold piece from circulation and substituting 
$20 in silver ? (Make no allowance for cost of melting coin up into 

25. Are there circumstances under which the general public 
would distinguish between cheaper and dearer money ? 

26. Could the "compensatory action" of a bimetallic standard 
keep the market ratio equal to a legal ratio of 8 to i ? 

27. If the silver mines of the world should fail entirely at the 
same time that gold mines became much more productive, would it 

• r 
*. * • • 

- • • • • 

> • 



be possible for the "compensatory action" to keep the two metals 
at a parity ? 

28. Construct a graph showing the variations in the ratio of gold 
and silver from 1787 to 1910, using five-year intervals. Plot on the 
same graph the figures of production of the precious metals for the 
same years. (See selections Nos. 44 and 64.) 

29. Why did it happen that monometallism was not tried before 
the nineteenth century, and in most countries not until the last 
quarter of the century ? 

B. History of Bimetallism 

1. Practically speaking, what function of money was mainly in 
mind in arguing for a double standard: (a) with the general public? 
(b) with scientific writers ? 

2. Can you see any connection between the existence of bimetal- 
lism and the growth of mercantilist doctrine ? 

3. Do you consider bimetalUsm responsible, in part, for the con- 
stant flow of currency from one country to another? What other 
causes could be responsible for these movements of specie ? 

4. What light do the statistics of production of the precious 
metals throw upon the need for bimetallism ? 

5. Three causes may be assigned for the growth of an agitation 
for monometallism: (a) the decline of mercantiUsm; (Jb) the evils of 
bimetallism in connection with international operations; (c) the 
increase in the quantity of precious metals to a point where two were 
not needed. Which do you think has been most important ? 

6. Answer the foregoing question by reference to the selection 
"England's Experience with Bimetallism." 

7. In France, when the market ratio was more than 15.5 to i, 
which was the overvalued metal at the mint ? What metal does the 
chart (p. 117) show to have been imported under such conditions? 

8. Between 1830 and 1853 both gold and silver appear to have 
been imported into France. How do you account for this ? 

9. Can you find by reference to the statistics of production of the 
precious metals on p. 74 an explanation of the comparatively slight 
fluctuations in the ratios between 1820 and 1859? Was not the 
compensatory action in part responsible for the relative stability 
shown ? 

10. How do you account for the marked change after 1850? 
Do you find the working of Gresham's law in France after 1850? 

11. Why do you think the ratio between 1850 and 1866 did not 
fluctuate more widely ? 


12. Did France have entirely a monometallic basis, now of silver, 
now of gold, or was there always some of both metals in circulation ? 

13. How can you account for the great fall in the value of silver 
after 1870 ? (Consult table on p. 74 and selection No. 72.) 

C. Bimetallism in the United States until 1873 

1. Did any coimtry have a single standard in 1791 ? 

2. Why was the double standard adopted in the first coinage law 
of the United States ? Why was the ratio of 15 to i chosen ? 

3. What provision was made in regard to foreign coins? Was 
this necessary ? 

4. "Under the operation of Gresham's law between 1792 and 
1834 both the gold and silver coins issued from the mint disappeared." 
Explain this anomaly. 

5. Why was the minting of silver coins discontinued by order of 
President Jefferson ? Was this a wise or necessary step ? 

6. What were the media of exchange during this period? Do 
you think the country suffered for lack of money ? How ? 

7. What would you have done to remedy the situation? 

8. What was the significance of the act of 1834 ? Which metal 
was altered ? 

9. It has been said the Congress had no right to tamper with the 
standard of value in 1834; that if Congress can change at will the 
monetary standard we are no better off than were the people of 
England in the days of Henry VIII, when the king could alter the 
standard at will. Criticize. 

10. Why do you suppose the ratio was changed so far? What 
was the result of the act ? Was silver entirely driven out before 1850 ? 

11. What was the purpose of the act of 1853? Did it abolish 
bimetallism ? 

12. Do you imagine that the country as a whole, or even congres- 
sional leaders, had reached the conclusion in 1853 that bimetallism 
should be abolished ? Do you think an act would have been passed 
at all in the absence of trouble with the subsidiary currency ? 

13. Why is it necessary to limit the issue of token coins ? 

14. The bullion value of our subsidiary silver at present is less 
than 40 cents ? Does not this encourage counterfeiting ? 

15. Which is more necessary, to give token coins some legal- 
tender power, or to limit the extent to which they are legal tender ? 

16. Of what practical importance is redeemability of token coins 
to the "movies"? 


D. International Bimetallism 

1. Under international bimetallism would either metal be driven 
out of the country through the operation of Gresham's law ? 

2. Would the "compensatory action" work more successfully 
under international than national bimetallism ? 

3. Under international bimetallism at a ratio of 16 to i, assume 
the market ratio to be 17 to i; show by a concrete example how a 
bullion-dealer could make a profit. Consider the following points: 

(i) Would gold be melted up ? 

(2) Would gold be hoarded ? 

(3) Would not coined silver dollars be used in the purchase of 
silver bullion ? 

4. Answer the following questions with reference to the Latin 
Monetary Union: 

(i) Was its establishment due to the operation of Gresham's law ? 

(2) Why was it not established twenty years earlier ? 

(3) Why was free coinage of silver suspended after 1875 ? 

(4) Was this a real test of international bimetallism ? 

5. What practical difficulties were there in the way of the estab- 
lishment of international bimetallism ? 

6. What classes objected most strongly abroad ? Why ? 

7. Which have greater weight, the practical or the theoretical 
objections to international bimetallism ? Which are sounder ? 



A. Advantages of Paper Currency 

1. Over which kind of paper money do you think the greatest 
controversy has been waged ? 

2. Is money confused with wealth in the arguments that advocate 
representative paper currency ? irredeemable paper currency ? 

3. What connection do you find between the two main types of 
paper money and the functions of money ? 

4. Which type of paper money probably originated first ? Why ? 

5. Which advantage of paper money do you regard as most, 
important ? What one has made the greatest popular appeal ? 

6. Is there a genuine saving of interest from the use of paper 
money ? 

7. Is it your opinion that a forced loan by means of an issue of 
paper currency is good financial policy ? 


B. History of Government Paper Money 

(i) Some Early Experiences 

1. Was not the original idea of using church lands as security 
for the "assignats" in France sound in principle? Could paper 
money thus be maintained at par? Was the land revenue- 
producing ? 

2. Were these notes redeemable either directly or indirectly? 

3. Was Talleyrand right in saying that land-secured paper was 
merely credit money and therefore certain to depreciate ? 

4. What gave rise to a demand for a second issue of assignats? 

5. Explain why it is that issues of paper money "breed" further 
issues ? 

6. Why should depreciation affect commerce and industry ? 

7. How did the "mandats" differ from the assignats? What 
was the connection between them ? 

8. Why were laws forbidding the use of coin, fixing prices, and 
forbidding depreciation of no avail ? 

9. Were the assignats and mandats legal tender ? 

10. What proclamation ended the paper-money fiasco in France ? 
Why did it end the trouble ? 

11. Was the first issue of bills of credit in South Carolina un- 
sound in principle ? If so, in what reispects ? If not, why not ? 

12. What effect did the interest-bearing quality have upon the 
bills ? 

13. Was the second issue any better protected than the first? 
If so, in what way ? 

14. Why were not these bills "sunk" as provided in the various 

15. Do you gather that the need for further revenue for protection 
"against the public enemies" was more imaginary than real ? 

16. What new principle was adopted by South Carolina in the 
act of June 7, 1712 ? Was this a justifiable procedure ? 

17. Do you think that it was a wise principle to make rice 
acceptable for taxes ? 

18. What effect did the legal- tender provision have upon the 
value of the paper ? 

19. What effect had the provision that the notes should be 
accepted for taxes ? Is such a provision preferable to a legal-tender 
clause ? 

20. When people paid their taxes in bills of credit, was the govern- 
ment receiving an equivalent for what it had given ? 

21. Were interest-bearing, non-legal- tender notes fraught with 
danger ? 


22. What effect in general resulted from the issue of Colonial 
bills of credit ? 

23. All things considered, do you think that the issue of Colonial 
bills of credit was necessary ? What would you have done ? 

(2) Paper Money as a Means of War Finance 

1. What methods of raising revenue were open to the colonies and 
the Continental Congress during the Revolution ? 

2. How soon after the outbreak of war was resort had to an issue 
of paper currency: (a) by the separate colonies? (b) by the Con- 
tinental Congress ? 

3. Is it your opinion that the dangers of an issue of paper currency 
were fully appreciated ? 

4. What security was there back of the "continentals" ? 

5. To what extent did the individual colonies resort to taxation and 
borrowing by bond issues ? Are they open to criticism on this score ? 

6. What were the results of the issue of the continental currency ? 
What classes were affected adversely ? 

7. Why did not the legal- tender provision prevent depreciation ? 

8. Why were not the attempts to enforce their acceptance at face 
value successful ? 

9. Did the use of the continental currency increase the cost of 
the war ? If so, how ? 

10. What would have happened if Congress had not issued paper 
currency ? Would the soldiers possibly have left the army ? 

11. Do you believe that, on the whole, the use of the paper 
currency during the Revolution was a necessity ? 

12. What light does the experience throw upon the principles of 
paper money ? 

13. What means of financing the Civil War were open to the 
Confederacy ? 

14. Do you fancy that paper money was used only as a last resort ? 

15. What gave the Confederate notes any value ? 

16. It has been said that financial collapse of the Confederacy 
was imminent at the end of the war and that even if its armies had 
not been defeated the South could not have held out much longer. 
Do you think this probable in view of the state of the currency ? 

17. Was the Confederate currency ever redeemed? Who really 
bore the cost of financing the Confederacy ? 

18. What was the general state of the government finances at 
the outbreak of the Civil War ? 

19. What was the purpose of the issues of greenbacks ? 

20. In your opinion did the plea of "absolute necessity" justify 
the issue of the greenbacks ? 



21. What other means of financing the war were there? 

22. At the beginning of the war non-interest-bearing Treasury 
notes were issued. They were payable on demand, acceptable for 
taxes and duties on imports, but were not legal tender. There were 
$33,000,000 of them issued, (i) Were these not an adequate means 
of financing the war ? (2) Why did people accept them ? (3) Would 
the legal-tender power have been of any aid to them ? 

23. Had the government borrowed all that it could at the time 
of the issue of greenbacks ? 

24. "The experience of half a century has demonstrated that the 
use of money is not worth more than 6 per cent. The government 
ought not to sell 6 per cent bonds below par." Criticize this argu- 
ment. What bearing did it have upon the greenback question ? 

25. Had the government been willing to borrow at the market 
rate, do you think that the issue of the greenbacks would have been 
"absolutely necessary" ? 

26. Had the government made adequate provision for increased 
revenues from taxes ? 

27. Did the failure to increase taxes affect the market value of 
government bonds ? Was it not wise to delay the issuing of bonds 
until taxes could be increased ? 

28. Why were the greenbacks not made a legal tender for the 
payment of customs' duties ? 

29. Why was interest on government bonds not made payable in 
greenbacks ? Was this a good principle ? 

30. Do you gather from the readings that the dangers of issuing 
greenbacks were appreciated by the majority of the members of Con- 
gress ? 

31. Which was the more excusable, the first or the subsequent 
issues of the greenbacks ? 

32. Draw up a statement of the means you would have employed 
to finance the Civil War. 

33. Why did the greenbacks depreciate? Were they "fiat" 
money ? 

34. What factors influenced the extent of depreciation during 
the Civil War ? 

35. How did the issue of greenbacks affect the real wages of the 
Union soldiers ? » 

36. Why did the use of greenbacks affect prices ? What was the 
legal standard of value at the time ? What was the actual standard ? 

37. Why did the issue of greenbacks cause an increase in govern- 
ment expenditures ? 

38. Why did the expenditures for commodities increase more 
rapidly than for labor ? 


39. What classes of government receipts were increased in con- 
sequence of the greenbacks ? 

40. Do you think that the indirect costs through government and 
private extravagance were important ? 

. 41. What effect would the issue of greenbacks have upon the rate 
of interest on government loans ? 

42. Was the saving in interest on the greenbacks a real saving? 
What subsequent losses ^might affect it? (See selections, Nos. 134 
and 135.) 

43. What effect had the greenback standard upon mercantile 
credit terms? 

44. The United States is the only nation which follows the 
practice of selling goods on open account, the purchaser borrowing 
the funds to pay (shortly) from his banker on the basis of a single- 
name promissory note. Is this practice traceable to the greenback 
standard? (See selections Nos. 219 and 220.) 

(3) Paper Money and Subsidiary Currency 

1. What necessitated the use of private token coins before 1834 
in the United States ? 

2. Why was there a dearth of subsidiary coins after 1834 ? Where 
did it disappear to ? Was the subsidiary coinage in a satisfactory 
state between 1853 and the Civil War ? Why ? 

3. What was the legal standard of value in the United States 
from 1862 to 1873? from 1873 to 1879? What was the actual 
standard ? 

4. What caused gold to be driven out of circulation during this 
period ? 

5. During the Civil War subsidiary silver coins contained 345.6 
grains of fine silver. The silver in a dollar was worth at the time 
about 104. 16 in terms of gold. What was the market value of two 
half-dollars ? How much depreciation of the greenback currency was 
necessary to drive the silver dollar from circulation? gold? sub- 
sidiary silver coins ? 

6. When greenbacks were worth 40 cents on the dollar, how much 
reduction in weight would have been necessary in order to keep the 
subsidiary coins in circulation ? Would such a reduction have been 
feasible ? 

7. Was fractional currency credit money in the same sense as 
the greenbacks ? 

8. Did postage stamps give a subsidiary currency of stable value ? 
Were they redeemable ? What gave them value ? 

9^. Was the fractional currency that was issued a depreciated 
currency ? What gave it any value ? 


10. What would have happened if, with a premium on gold of 6 
per cent as compared with greenbacks, the Treasury had attempted 
to redeem the fractional currency in subsidiary silver ? What if the 
premium had been but 2 per cent ? 

11. What gave value to the private token coins which contained 
the names of the issuer ? 

12. How could the general tokens have powers in exchange? 
Do you suppose that they were ever at par ? Do you suppose tiat 
they ultimately depreciated to nothing ? 

13. If we had possessed a single gold standard of value during 
the Civil War, should we have suffered from these fractional currency 
inconveniences ? 

C. The Aftermath of the Greenbacks 

1. Do you think it likely that the use of irredeemable greenbacks 
during the war resulted in changing the popular conception of the 
nature and basis of sound money ? 

2. Why did bank notes as well as greenbacks seem to be credit 
money ? 

3. What effect did the resolution of Congress in favor of an early 
specie redemption and the act providing for the retirement of the 
greenbacks as fast as revenues would permit have upon (a) the value 
of the greenbacks ? (b) prices of commodities ? (c) the popular idea 
of business conditions ? 

4. Was it easy to borrow between 1866 and 1875 ? Why ? 

5. What caused the passage of the act of 1868 prohibiting further 
contraction of the greenbacks ? 

6. To what extent do you think that the antagonism to national 
banks was the cause for the greenback agitation? (See Part II, 
selections Nos. 128, 129, 130.) 

7. What were the causes of falling prices after the war ? 

8. Why were the frontier farmers so strongly in favor of green- 
backs ? 

9. What classes of people made up the Greenback party in the 

10. Why were the farmers especially interested ? 

11. In your opinion were those who held that a destruction of 
the $382,000,000 of greenbacks would be a destruction of just that 
much property sincere in their belief ? Was there any truth in this 
contention ? 

12. What effect would an increase of greenbacks have had on 
interest rates ? What economic results follow from this ? 


13. What were the provisions of the Resumption act of 1875 ? 
Why was not redemption of the greenbacks begun at once ? 

14. Does it appear to you that there were serious grounds for 
doubting the possibility of resumption ? the desirability of resumj>- 

15. When did the greenbacks actually come to a parity with gold ? 

16. How did Secretary Sherman secure the funds necessary for 
resumption of specie payments ? 

17. What difficulties, if any, were apprehended and encountered 
when resumption was accomplished ? 

18. Does it seem to you that the courts decided wisely in holding 
that the greenbacks were legal tender in case of (a) contracts entered 
into before their issue? (b) contracts entered into after their 
issue ? 

19. Do you think that the issue of the greenbacks was really 
constitutional ? 

20. Do you believe that the court was justified in ruling their 
continued reissue in time of peace constitutional? Do you think 
that the framers of the Constitution imagined that any such liberal 
interpretation of the Constitution would be made ? 

22. In your opinion was the court influenced either consciously 
or unconsciously by the greenback philosophy of the time ? 

22. Does the Populist party platform of 1896 show the influence 
of the greenback philosophy of a previous generation? (In this 
connection reread selection No. 89.) 

23. Do you find many evidences nowadays of the survival of 
Greenbackism ? 

D. The Regulation of Government Paper Currency 

1. Can paper money have any value if it is not redeemable, 
either immediately or ultimately ? 

2. Is there any means by which it can be inconvertible and yet 
be prevented from depreciating ? 

3. If "value is dependent upon cost of production, and the cost 
of producing paper money is virtually negligible, the value of paper 
money must be virtually negligible." Criticize. 

4. "Paper money is all right in theory; but it will not work in 
practice. ' ' Discuss. 

5. Which of the various warning signs that paper has been over- 
issued do you think is the easiest to observe ? Which manifests itself 

6. Where could one find out about the premium on gold ? 


7. Are you convinced that these signs have all been observed in 
paper-money experiences ? Have they ever been acted upon ? Why 
are they not usually acted upon ? 

8. Discuss the relation of paper money to foreign trade. 

9. "The lesson of the greenback fight should never be lost to the 
instructors of youth or the statesmen of America. The only way to 
make inflationism truly dangerous is to be afraid of it. Once the 
calm, unfaltering eye of courageous reason is fixed on the savage 
thing that would rend the nation, it shrinks back overmastered to its 
lair." This was written in 1892. Do you agree ? 

10. Of the various methods for maintaining the value of paper 
money without specie redemption, which do you regard as most 
efiicient ? 

11. Of the various methods of maintaining the convertibility of 
paper money, which do you think preferable ? 

12. The following questions are based on selection No. 114; 
(i) What was the reserve for " natural money" ? 

(2) What important principle that is so often not understood by 
paper-money advocates is clearly appreciated by the author 
of' "natural money" ? 

(3) Would it not have been wise to have a board of experts 
determine the quantity of money needed by the community ? 

(4) If this currency is based upon service due and rendered (paid 
• for in labor), is it any less expensive than other currency? 

Were not the greenbacks issued for service performed ? 

(5) Do you think that the automatic means suggested for deter- 
mining the quantity of money required would work in 
practice ? 

(6) How would notes that were not required be retired ? 

(7) Do you cojisider the scheme proposed practicable for a 
new community? 

(8) Could such a system be established by a government long 
accustomed to a wholly different plan ? 


A. The Agitation for the Recoinage of Silver 

1. What metallic standard did we have between 1853 and 1873 ? 

2. Was there any agitation for a change in the legal ratio of gold 
to silver during this period ? 

3. Precisely what was done with silver by the act of 1873 ? 

4. In what did the "crime of 1873" consist? 


5. Are you convinced that the coinage of the silver dollar was 
omitted secretly, with intent to deceive ? Was there any need of 
secrecy ? 

6. Was there any good reason for not omitting the silver dollar 
from the list of lawful coins ? 

7. Do you agree with Walker that especial attention should have 
been called to the measure ? 

8. Why was so little said about the act of 1873 at the time of its 
passage ? 

9. Construct a chart on the basis of data given in selections 
Nos. 44 and 64 showing the fluctuations in the relative values of 
gold and silver from 1870 to 1900. 

(i) Do you find from this an explanation of the agitation for the 

recoinage of silver ? 
(2) Why did not the agitation begin in 1874 ? 

10. "Silver is not *the victim of the laws of nature ^* it is the 
victim of man's conspiracy. Not until it was denied access to the 
mint on equal terms with gold did its mint and market value vary 
appreciably." Criticize this statement on the basis of the evidence 
furnished by your chart. 

11. What was the weight and purpose of the trade dollar ? 

12. Was the trade dollar intended for home circulation at all? 

13. Why was it made a legal tender ? 

14. Was there free coinage of the trade dollar ? 

15. What caused the circulation of trade dollars in the United 
States after 1877? Why would they circulate in California before 

I they would elsewhere ? 

* 16. Would the trade dollars have circulated if standard silver 

dollars had been authorized under the act of 1873 ? 

17. Why was it necessary to stop coining them ? 

18. Was it a wise policy to redeem these trade dollars ultimately ? 

19. How much is one worth at the present time? 

20. What classes of people made up the silver party ? Was this 
a distinct political party ? 

21. Do you suppose that the sentiment for more money that had 
been aroused by the greenback movement was a factor in the silver 
agitation ? 

22. "For more than three-quarters of the most enlightened and 
progressive century in human history the silver dollar was the honored 
and unquestioned currency of the United States government. The 
war of 181 2, the war with Mexico, and the war for the Union- were 
more indebted to silver money, both as a circuliating medium and as 
a metallic basis for the support of a paper currency, than to gold. 
It is especially endeared to the pioneers and settlers of the new states. 


admitted into the Union after the adoption of the Constitution, and 
to their descendants who have witnessed its blessings'' (from an 
address by Senator Vorhees). Do you think this is a true statement ? 

23. "If gold is the best money, it will of course stand the best 
test. The supreme test of all things hvmian is the ordeal of war. 
What is to be said of a money that disappears on the outbreak of 
hostilities ? Do we consider citizens the best citizens who leave their 
country on the first appeal to arms ?" (Senator Jones). 

24. " We are told that the cheaper money will drive out the dearer, 
and gold will be banished from our circulation. Silver will not drive 
out anything. Silver is not aggressive; it is so much like the apostle's 

description of wisdom that it is first pure, then peaceful, gentle 

Put a silver and a gold dollar into the same purse and they will lie. 
quietly together" (Senator Howe). 

25. Were the * 'sentimental" arguments in favor of free silver not 
at bottom inflationist arguments ? 

26. **The prime object in remonetizing silver is to add to the 
solid substantial intrinsic money stock of the country. There can't 
be too much hard money — ^real money — ^in circulation. Such an infla- 
tion is stimulating and invigorating. It is at once a sign and proof 
of commercial prosperity. The simple remonetization of the silver 
dollar, with proper provisions for its coinage, will constitute a 
steady stream to the money resources of the United States" (Chicago 
Tribune, January 23, 1878). Criticize in the light of recent monetary 

27. "Every great statesman and political economist of the last 
hundred years has laid down as a political axiom that the values of 
property are determined by the volume of money proportionate to 
the volume of trade transactions. The argument may be summarized 
as follows: 

"Double the volume of money, you double the value of products. 

"Divide the volume of money, and you divide the value of 

"Divide the volume of money, you double the debt. 

"Double the volume of money and you divide the debt" (Con- 
gressman Sibley) . Is there anything wrong with this statement ? 

28. Do you think that the popular demand for more money was 
unfounded ? 

29. Would not rising prices have been a good thing in the nineties ? 
Was it not the rising prices of the late nineties that ushered in the 
long period of prosperity which followed ? 

. 30. Would an increase of the per capita circulation give the poor 
people more money? Would it give anyone increased purchasing 
power ? Would it not stimulate industry ? 


31. Criticize the argument that since the per capita circulation 
increased between 1870 and 1891 from 17.50 to 23.45 the country 
has grown more prosperous. Is there any connection between 
prosperity and the per capita circulation ? 

32. Upon what classes of the community do the evils of depre- 
ciated money fall most heavily ? 

33. As a matter of fact, for what purpose was most of the debt 
of the farmers of the West contracted ? Were these farmers, then, 
in the main a pauper class requiring help from the state ? Were the 
debtors in this case as thrifty as any class of people ? 

34. **A debt for $1,000 that 1,000 bushels of wheat would have 
paid, ten years ago now requires the farmer to give up 2,000 bushels 
of wheat, in exchange for these dollars, with which to pay the same 
debt. The debts now in existence are principally old debts or renewed 
or funded debts, or new debts contracted to pay old debts, or debts 
which the people have been forced to contract by reason of the con- 
tinued decline in prices. The owners of products must now give up 
twice as much property to pay the taxes as in 1873'' (open letter to 
President Cleveland, April, 1894; distributed among farmers in a 

(i) Is the conclusion sound that the debtor was injured by falling 
prices ? 

(2) Would a depreciated money — ^a 50-cent dollar — set him right ? 

(3) Would bimetallism cure the evil ? 

35. To your way of thinking, was it the moral duty of the debtors 
to stand by their contracts? Suppose prices had risen, would the 
debtors have advocated a contraction of the currency ? 

36. Is there any valid ground for believing that the attempt to 
prevent the recoinage of silver was part of a gigantic conspiracy on the 
part of the moneyed interests to enhance their own wealth at the 
expense of the masses? Granted the standard were stable, would 
the creditors have seriously objected to silver? Did they oppose 
international bimetallism ? 

37. As a matter of fact, were the so-called debtors '* ne'er-do-wells" 
who were in debt only because of incompetency or lack of forethought ? 

38. Why have the debtors always been more insistent for cheap 
money than have creditors for dear money ? 

39. '* I object to the silver standard being adopted in lieu of the 
existing standard, because it will defraud all creditors out of one-half 
of the value of their debts. Every debt contracted since January i, 
1879, was contracted on the gold standard. The debtor honestly 
owes the value of 23.22 grains of gold for every dollar promised, and 
the creditor is honestly entitled to receive it" (letter to Texas Demo- 
crats by Hon. Roger Q. Mills). 


40. **If a free silver bill becomes a law, a veteran who now gets a 
pension worth to him $4. 00 per month would receive actually $2 . 80, 
with the chance of its going down to an actual value of $2.40. An 
old soldier who is a total physical wreck gets $72 . 00 per month. If a 
free silver bill passes, while he would nominally get the sum, he 
would really get but $50.40, with a strong probabiUty that in the 
early future his $72.00 of monthly pension would be reduced to 
$43 . 20. This coinage question should not be one of party politics. 
It rises above partisanship. The honor of the country is at stake. 
Its good faith not only to its living soldiers is brought into question, 
but if a so-called free coinage bill becomes law, the widows and 
orphans of the nation's dead will be robbed by the laws of the land 
they died to save. The law would work a monstrous wrong, for 
from the moment it goes upon the statute book it represents over 
$45,000,000 per year taken from the ex-soldiers, their widows, and 
their orphans*' (Congressman Harter in a circular to all the Grand 
Army posts, 1892). 

41. Do you agree with the common contention of the time that 
the debtor class was dishonest and trying to get something for 
nothing ? 

42. Would the men in the creditor class not have had different 
views if they had been debtors ? 

43. Was the opposition to "cheap money" in New England due 
to superior honesty and morality, or to self-interest ? 

44. Do you hold that the people of the silver states were not 
justified in advocating silver coinage merely to increase the value 
of their chief product ? 

45. How do you account for the extreme statements and fallacious 
arguments of members of Congress? Were such speakers mere 
demagogues ? 

B, Results of the Silver Agitation 

1. Did the Bland- Allison act provide for free coinage of silver ? 

2. What effect had the passage of the Bland- Allison act on the 
greenback movement? 

3. How much silver was coined under the Bland- Allison act? 

4. Did the act accomplish what either party to the compromise 
expected ? 

5. What forces held the silver agitation in abeyance during the 
eighties ? 

6. What is meant by a redundant currency ? 

7. What caused the silver to pile up in the Treasury ? 

8. By what means was the silver finally gotten into general 
circulation ? 


9. Did the experience from 1878 to 1890 prove anything as 
regards the following: (a) the relation of money to prosperity? (b) 
the quantity of money needed by a community ? 

ID. In what way was the Sherman law of 1890 a compromise 
measure ? 

11. "The substitution of ounces of silver purchased for dollars' 
worth, as under the Bland-Allison act, was a shrewd amendment on 
the part of Sherman and resulted in a distinct gain for the gold men." 

12. On all the silver coined under the Bland- Allison act and the 
Sherman law the government madje a seignorage. Between 1878 
and 1891 the government purchased 291,272,018 ounces of silver at 
an average price of $1.0583 per ounce, or for $308,279,260. How 
much seignorage was there ? 

13. From 1891 to 1894, inclusive, 168,674,682.53 fine ounces of 
silver bullion were purchased. The average cost was $0.9244 per 
ounce, or $155,931,002. These were paid for with $155,931,002 of 
Treasury notes. 

(i) If this silver had all been held in the form of bullion, would 
there have been in 1894, when the price of silver was $0.7312, 
the equivalent of a gold reserve in value ? 

(2) Only so much of this silver was coined as was necessary to 
redeem Treasury notes that might be sent in for silver. 
How many dollars could have been coined at the mint price 
of $1.29 an ounce? 

(3) As the price of silver fell, did the seignorage profit of the 
government increase ? 

14. What was the proposition for coining the seignorage in 
advance and putting it into circulation? Would this have been 
possible ? How would it have affected the monetary situation ? 

15. How large a reserve was there for the greenbacks at this 
time? Was it a special fund? What means were provided for its 
replenishment ? 

16. What did the law hold as regards the redemption of the 
Treasury notes of 1890? What stand did President Cleveland and 
the Secretary of the Treasury take ? Discuss. 

17. What was the "endless chain" of greenback redemption? 
How much gold could thus be "pumped" out of the Treasury ? 

18. What effect did the Sherman law have upon the credit of the 
government ? 

19. In what way was our unsound monetary system instru- 
mental in causing a flow of gold abroad? Was Gresham's law 
operating ? 


20. Is it your belief that the panic of 1893 was due entirely to our 
monetary situation ? Was it partly due to this ? 

21. What caused the hoarding of gold at this time ? 

22. Why did the percentage of gold in the customs receipts always 
decrease in time of stress ? (See chart, p. 231.) 

23. What caused the very serious depletion of the gold reserve 
in 1894-95 ? How was it restored ? 

24. Was there any ground for the charge that the government 
was in control of bankers, or that a bad bargain was struck ? 

25. Why could loans be made at a lower rate if interest were 
made payable in gold ? 

26. What effect did the passage of the act of November i, 1893, 
have upon the government's credit ? " Fear that we could not main- 
tain the convertibility of the greenbacks has so frequently been aroused 
that on five occasions (once in 1877-78, twice in 1894, once each in 
189s and 1896) we have been forced to increase the public debt to 
maintain the gold reserve. The total increase in debt for this purpose 
has been $357,815,400, and the total annual interest charge now is 

(i) Must this interest be counted as a part of the ultimate cost 

of the greenbacks? 
(2) Compare this interest with the annual saving of interest in 

the use of greenbacks instead of gold. 

27. "The question as to the part played by the government's 
gold reserve in maintaining the value of the legal-tender notes is by 
no means a simple one. That a number of factors besides this reserve 
must also be taken into account becomes apparent to anyone giving 
the subject more than a superficial consideration. The usual order 
of thought is: (a) The government accumulates a gold reserve; (b) 
the gold reserve inspires confidence; (c) as a result the notes circulate 
at par. This is the view generally taken of the way in which the 
resumption of specie payments was brought about in 1879, and its 
crudities are justly open to criticism. Without favorable circum- 
stances in our foreign trade relations, and a large reduction in the 
per capita circulation, Congress might have passed resolutions and 
accumulated a golden treasure in vain. Rather the order of thought 
should be: (a) The notes exist in quantities so limited that they are 
insufficient for the money needs, and thus circulate side by side with 
gold; (b) the public has confidence that such parity is to continue; 
(c) it is therefore possible for the government to retain a gold reserve. 
By a not uncommon fallacy the third condition comes to be looked 
upon as the cause of the first" (Professor Frank A. Fetter). Discuss 
this contention. 


C. The Close of the Silver Controversy 

1. Was the silver issue anticipated by the Republicans in 1896? 
What conditions made it the issue ? 

2. How did the Democratic party seek to overthrow conclusions 
drawn from the experience under the Sherman law ? 

3. Did the Republicans in 1896 oppose the idea of more money? 
Did they oppose bimetallism ? 

4. Was there any point to the argument that we should wait for 
other nations to join with us in an international agreement ? 

5. What does the distribution of votes in the election of 1896 
indicate ? 

6. What would have been the result if free coinage of silver had 
been secured in 1896? Study the statistics of production of the 
precious metals since 1896 and see if you think a market ratio of 
16 to I would have resulted because of the increased demand for 

7. Why did not the Republicans take up the currency question 
immediately upon coming into office in 1897 ? 

8. Did the act of 1900 give us a genuine gold standard? Did it 
differ any from the act of 1873 ^^ ^^s regard ? 

9. Do we have the limping standard since the act of 1900? 

10. How did the act of 1900 seek to prevent the operation of the 
"endless chain*' of greenback redemption,? 

11. What is the significance of the provision for divisions of 
issues and redemption in the Treasury Department ? 

12. How are the silver dollars kept at a parity with gold? Are 
they redeemable ? 

13. What provision was made by the law of 1900 with reference 
to the Treasury notes of 1890? ' What is taking their place in our 
circulation? What will become of the seignorage of $62,000,000? 

14. "Although the greenback and the silver dollar are not a 
present cause for anxiety, all fiat money is objectionable, because it is 
a noxious microbe capable of multiplication. It would be best to 
remove it, so that its evil example may not be before the public eye 
to lure us astray in some future emergency" (Horace White). Do 
you agree ? 

15. Do you think that the provision in the currency act of 1913 
making possible an eventual retirement of the greenbacks is wise ? 

16. To what causes do you assign the disappearance of the silver 
agitation? (Consult table of statistics of gold production, p. 74.) 
What is the present per capita circulation ? Has truth prevailed or 
have conditions merely changed ? 


17. May we expect a recurrence of the silver agitation in the 
future ? 

18. How do you account for the shift in position on the question 
of the relation of money to prices by the leading poUtical parties ? 

19. Would not the free coinage of silver and the consequent 
increase of money tend to alleviate the present high cost of living ? 



1. What is the purpose of a multiple standard of value ? 

2. Construct an index number for 10 commodities of common 
use, using price quotations from the daily press ? Do you think that 
you have secured a satisfactory index number for a multiple standard ? 

3. What is the weakness in the argument of Mr. Cox ? 

4. Does a multiple standard introduce a new medium of exchange ? 
Would prices be quoted in terms of the multiple standard ? 

5. Would a debt agreement be drawn any differently from the 
manner in which it is drawn now ? 

6. Would a merchant keep his accounts in terms of gold or in 
terms of the index number ? 

7. Would a multiple standard be of use in short- time transactions ? 

8. Does the multiple standard insure justice as between debtor 
and creditor ? 

9. Do you agree with the argument that the effect of a multiple 
standard in time of falling prices, owing to improved methods of 
production, is to take something away from the creditor and give it 
to the debtor ? 

10. What classes would be benefited by a multiple standard at 
present ? 

11. If A were loaning B under a gold standard, during a period 
of rising prices, would they agree on a low rate of interest in order to 
offset tJie fall in the value of gold ? 

12. Do you consider it probable that we shall ever establish a 
multiple standard? 

13. How does the plan of the compensated dollar differ from the 
multiple-standard idea ? 

14. Would prices remain absolutely stable under such a system ? 

15. In terms of what unit would monetary contracts be made 
with a compensated dollar ? 

16. Would the scheme work in a period of falling prices? 

17. Is there danger that the amount of compensation might be 
top great for the reserve back of it to carry ? 

J » 


18. Would an international agreement be necessary in order to 
make the plan successful ? 

19. Is such a standard likely to be established, do you imagine? 
Are there fewer practical obstacles than in the case of the multiple 
standard ? 


1. Which of our various forms of money would you call token 
money ? which representative money ? 

2. Have we diny fiat currency now? How is this distinguished 
from representative money ? 

3. How would you distinguish between fractional and subsidiary 
currency ? Where would you place the silver dollar ? 

4., Is there any difference at present between fractional and token 
coins ? Has this always been true ? 

5. Are the laws of token money observed in the United States? 

6. What difference is there between two half-dollars and one 
dollar in silver? Why this difference? Is there any occasion for 
it now ? ^ 

7. Would you advise decreasing the amount of seignorage in our 
token coins, in order to reduce the incentive to counterfeiting ? 

8. Do you think that our silver dollar should be of full legal-tender 
power in view of its seignorage ? 

9. How are the silver dollars kept at a parity with gold ? 

10. Upon what does the value of the silver certificate depend? 
immediately ? ultimately ? 

11. Upon what does the yalue of the gold certificate depend ? 

12. In what are the Treasury notes of 1890 redeemable? 

13. How are the United States notes, or greenbacks, maintained 
at par ? 

14." What is meant by legal tender ? Is it necessary for money 
to be legal tender in order for it to be current ? 

15. Must a man accept legal- tender coins in payment of debts? 
If he refuses for any reason, does that absolve the debtor from further 
obligation ? 

16. "Our main interest in legal tender centers in what are termed 
' executory contracts.' " Explain. 

17. Would contracts like the following be binding in the United 

(a) I promise to pay for value received $10,000 in lawful money, 
except in silver ? 


(b) I promise to pay for value received $i,ooo in lawful money, 
except in gold ? 

(c) I proitdse to pay for value received i,ooo silver dollars? 

(d) I promise to pay for value received i,ooo bushels of wheat 
at the market price then current? 

i8. Why are silver and gold certificates not legal tender ? Should 
they be made so ? 

19. Can you lay down any general rule as to the proportion the 
standard money should bear to the entire monetary stock ? 

20. What forms of our currency are based in part on credit? 
Estimate as nearly as you can to what extent in each case the credit 
element enters. 

21. Do you regard our system as safe? What do you mean by 
safe ? Is there not danger that the government may not always be 
able to maintain these various forms of currency at a parity with 

22. Would it be wise to increase the quantity of paper currency ? 

23. Does it strike you that our currency system is compUcated 
and more or less clumsy ? 

24. What reforms would you suggest ? 



1. What is the simplest and probably the first function of a bank ? 

2. Why should private banks have been developed in advance of 
public institutions as a rule ? 

3. Of the various services performed by banking institutions, 
which was formerly the most important ? Which is most important 
at the present time ? 

4. Are all the services listed by Gilbart performed by banks 
today ? From your own experience can you think of any additional 
services which tfiey now perform ? 

5. What is the liue of division between commercial and invest- 
ment banking operations ? Do you find the line difficult to draw ? 

6. A is a manufacturer. He borrows from a bank $100,000 with 
which to enlarge his plant and equipment. Assuming that the life of 
such an establishment is twenty years, how soon will the earnings 
from the enlarged plant enable A to repay the $100,000 to the bank ? 
Which tj^e of banking operation would this involve ? 

7. B is a manufacturer. He borrows $10,000 with which to 
purchase raw materials for manufacture into finished goods. Assum- 
ing that this requires about three months, how soon can B repay his 
loan to the bank? Which tj^e of banking operation would this 
involve ? 

8. A bank is engaged in receiving deposits of cash and investing 
them in railroad bonds. Is this commercial or investment banking ? 

9. A bank purchases the bonds of an industrial corporation or 
city government and sells them to the general public. What tj^e of 
banking operation is this ? 

10. An insurance company invests the premiums paid by its 
policy-holders in real estate mortgages. Is fliis a kind of banking 
operation ? If so, what tj^e ? 

11. A bank is engaged in making loans to local storekeepers to be 
used in connection with their '^general business." What type of 
banking operation is this ? 

12. Should you say, judging from your analysis of the foregoing 
questions, that investment banking concerns itself with long-time 
financial operations while commercial banking has to do with short- 
time financing ? 



13. Which is the more important distinction between commercial 
and investment banking, that of timey or the use to which the funds 
are put ? 

14. Do you think that this difference in the time for which loans 
are extended arid the use to which the funds are put would necessitate 
quite different methods of conducting the banking business ? How, 
for example? 

15. Which type of banking operation do you regard as the more 
important? (This general distinction between conmiercial and 
investment operations will be more fully discussed in succeeding 

16. Does the classification of banks into national, state, and 
private throw any light on the character of their business ? 

17. Does the classification of banks into conmiercial banks, trust 
companies, savings banks, co-operative banks, and investment banks 
reveal the tjrpe of their operations ? 

18. Is it common for a given banking institution to perform both 
kinds of services ? 

19. Is it conunon for the various types of banks to specialize in 
one t)^e of operation and engage in the other more or less incidentally ? 


1. Give a definition of credit. 

2. What is the difference between credit and credit instruments? 

3. Name as many forms of credit instriunents as possible. 

4. Enumerate as many ways as possible that credit is foimd in 
the modern world. 

5. Is credit based upon money? Does it call for payment in 
money as a rule ? always ? 

6. How does the total quantity of credit compare with the total 
quantity of money ? 

7. What is the limit to the amount that any individual can 
borrow, or, in other words, how far he can extend his credit ? 

8. What is meant by the statement that the basis of credit is 
confidence ? 

9. Which do you regard as more important in credit, the man's 
character and general reputation or his property ? 

10. Would you loan a man funds on the strength of his moral 
character alone ? 

11. What factors would you consider in investigating a man's 
character ? 


12. Would you loan funds to a man of poor moral character it he 
had plenty of property as security for the loan ? Do business men 
consider such things as the personal habits of a borrower ? 

13. "I have absolutely no respect for Mr. X personally; but I 
must admit that he always pays his debts." Would you consider 
such a testimonial afe favorable ? 

14. Would you ever loan funds to a man whom you knew to be 
dishonest ? Suppose he deposited gilt-edged securities as collateral ? 

15. In investigating the property security offered for a loan, 
what elements would you consider ? 

16. If a merchant's property were not insured, would you let 
him have credit ? 

17. Is confidence based on goods, or on character, or on both ? 

18. In the case of public credit is there any property basis for 
the credit ? 

19. What is back of that portion of the greenbacks that is unse- 
cured by gold ? 

20. Why do the warring nations in Europe have to offer higher 
rates of interest on bonds now than before the war ? Is their credit 
poorer now than formerly ? If so, in what respect ? 

21. Why do the state governments have to pay higher rates of 
interest for money than the national government? Why do some 
states have to pay higher than others ? 

22. Is the basis of capital or corporation credit confidence in the 
management or in the property itself ? 

23. Why are the rates on industrial bonds higher than on the 
public-service companies ? 

24. Why would you rather purchase bonds through a long- 
established, highly reputable bond-house, than from a newly estab- 
lished house of unknown reputation ? 

25. When a retailer advertises: "Your credit is good, cash 
payments not required," on what is he basing his belief that his 
customers will prove good? Would such a hierchant's own credit 
standing be good ? 

26. In the case of "book credit" in the ordinary general store of a 
small town, what is the basis of credit? Is there any property 
security involved ? 

27. Is "personal" as safe as other kinds of credit? 

28. When Marshall Field & Company extends credit to a lawyer, 
allowing him to pay his bills monthly, what is the basis of the credit ? 

29. When Mandel Brothers extend credit to the same lawyer on 
the strength of the fact that he has "an account" at Field's, what is 
the basis of this credit ? 

30. Is bank credit essentially different from other forms of credit ? 


31. Which would you rather have, the promise to pay of a well- 
known bank or of an individual ? Why ? 

32. If a bank were not under government regulation, how would 
you answer the foregoing question ? 

33. Does it seem to you that a bank has a greater power of credit 
expansion than an average business man ? 

34. Does a bank use credit when it creates a time obligation, or 
only when it creates a demand obligation ? 

35. What are the instruments of bank credit? 

36. Do bank notes and checks perform monetary functions? 
Arc they money ? 

37. What is the diflfcrence between commercial credit and com- 
mercial banking? investment credit and investment banking? 
commercial credit and banking credit? 

38. Which do you regard as more important, commercial or 
investment credit ? 

39. Is credit capital to an individual ? Is it social capital ? 

40. In what way does commercial credit aid in the carrying on 
of industry ? Does it increase the productive capacity of a nation ? 

41. Does commercial credit function like money in the industrial 
process ? 

42. Is it credit or credit instruments that furnishes a convenient 
medium of exchange ? 

43. Is the monetary function of credit its chief importance, or is 
this merely incidental ? 

44. Indicate precisely what results would follow if commercial 
credit were to disappear entirely from the business world. Do the 
same with investment credit. 

45. Why was the use of credit so little practiced among primitive 
people ? 

46. Does the institution of credit have any moral effect upon a 
community ? 

47. Does credit tend to develop more extensive international 
relations ? Is it a factor working toward international peace ? 

48. Are there any disadvantages growing out of the use of credit ? 
(The answer to this question will be found in chap, vi, particularly 
section 26.) 


1. What is the definition of a bill of exchange ? 

2. What different forms of bills of exchange are there? 

3. Where did the terms foreign and domestic bills originate? 
What reason is there for calling bills between states foreign bills ? 


4. What is meant by this: "first of exchange, second being 
unpaid'' ? What is the purpose of duplicate bills ? 

5. What is the difference in form between a bank note and a 
check ? 

6. How does a cashier's check differ from an ordinary check ? 

7. What is a certified check? 

8. Show by a concrete example the difference between a draft 
and a promissory note. 

9. Does a bank draft differ from any other form qf draft ? 

10. In the case of a bank draft, does more than one party have 
to be a bank ? 

11. What would you call an order of a bank drawn against an 
individual ? 

12. What is a several note ? A joint and several note ? 

13. What is meant by accepting a draft, and what is the party 
called who accepts it ? 

14. Suppose that a bank accepts a draft drawn against itself. 
What would the instrument be called ? 

15. What is the obligation of the party accepting a draft, before 
and after acceptance ? 

16. Is there any real difference in principle between the following 
instruments: A draws a draft against B, which is accepted by B. 
B writes a promissory note in favor of A, which is indorsed by A ? 

17. What obUgation does the indorser of a note assume? 

18. Compare the indorser of a note and the maker of a draft as 
to liability. 

19. How does a negotiable instrument differ from an ordinary- 
contract ? 

20. What are the advantages of a negotiable over a non-negotiable 
instrument ? 

21. X becomes the bona fide holder for value of a note upon 
which the maker's name was forged. Can he collect of the maker ? 
of the indorser ? 

22. Give a case in which the title would be good in the hands of a 
bona fide holder for value, but would not be enforceable as between 
the original parties. 

23. X made and delivered a promissory note 60 days after date 
to the order of Y. Y secretly changed the date of pajonent to 90 
days. Did this affect X's hability on the instrument ? 

24. What is the purpose of "indorsement without recourse"? 
Is such an indorsement of any value f ronl the standpoint of security ? 

25. A note with four indorsements is dishonored. To whom may 
the holder look for reimbursement ? 

26. What is meant by a " no protest " note ? What is the effect ? 


27. What is an indorsement in blank? 

28. How would you indorse a note to be sent through the mail ? 

29. How do you indorse checks payable to yourself ? 

30. Is the following a negotiable instrument: 

Chicago, III., May 17, 1914 
Due John Jones, one thousand dollars. Value received. 

John Smith 

31. An instrument is written in lead pencil in the following form: 

Chicago, III. 
I, John Jones, promise to pay John Smith, or order, fifty dollars, 
value received. 

Mention several particulars in which this note is not in the usual 
form. Is it negotiable ? ^ 

32. Is the following negotiable: 

St. Louis, Mo., June i, 191 5 
Three months after date, for value received, I promise to pay John 
Doe, or order, one hundred dollars, or ninety -five dollars if payable two 
months after date. (Signed) Richard Roe 

33. Is the following a negotiable instrument: 

New York, N.Y., June i, 191 5 
For value received, I promise to pay to George Rogers, or order, one 
hundred dollars when he marries. William Stone 

Would the above be negotiable if it read, "when he shall be twenty- 
one years of age" ? 

34. A note is signed George Smith, by Henry Land, Agent. 
Which of the two parties does the signature hold ? 

35. A check on a Chicago bank is given by A to B in Chicago on 
January 25. It is not presented for payment on January 26, and 
on January 27 the bank fails. Whose is the loss ? 

36. A check on a Chicago bank is given to A in New York on 
May 15. It reaches the Chicago bank on May 19, but the bank 
had closed its doors May 18. Whose is the loss? 

37. An indorsement on a note for one hundred dollars is made 
as follows: "Pay to X, or order, fifty dollars of the within note, 
signed Y." Is this a good indorsement? 

38. A check made payable to the order of Y is indorsed by Y in 
blank. The check is found by X, who indorses it and presents it for 
payment. Has X a valid claim to the funds ? 

39. A check made payable to bearer is lost by A and found by B, 
who indorses it as follows: "Pay to the order of C," signed B. The 
check is again lost and is recovered by A. Who has the valid claim 
to the funds ? 


40. A executed a promissory note to B for $500, payable three 
months after date. One month after date he paid the note. The 
note was not destroyed, but was lost and came into the hands of 
C, a bona fide holder for value. Can C recover on the note ? 

41. Draw up and indorse a note in proper form to be negotiable. 

42. Give a list of the essential points in a negotiable instrument. 

43. To what extent are notes and drafts used as media of 
exchange ? 

44. Why do checks enjoy a greater monetary use than notes and 
drafts ? What is the security underlying checks ? 

45. What proportion of business transactions are settled by 
checks nowadays ? 


A. Analysis of Banking Operations and Accounts 

1. What is the difference between shareholder and creditor 
liability ? 

2. What is the difference between loans, capital, and surplus? 
between surplus and undivided profits ? 

3. What general principles govern the amount of capital required 
by a bank ? 

4. What is the difference between surplus and cash reserve ? 

5. Draw up a classification of resources showing quick and non- 
liquid assets. 

6. What are current liabilities ? 

7. What is the difference between bank and trufe discount? 
Figure the bank and the true discount on a note for $5,000 which 
has 60 days to run at 6 per cent. 

8. Is it fair for a bank to charge the customer the additional 
amount obtained by bank discount ? Is it really an excess profit ? 
What is the explanation of the current practice ? 

9. '^All discounts are loans, but not all loans are discounts.'^ 
What is meant by this statement ? 

10. How do you explain the practice of discounting ? Is it not 
simpler to pay interest at the maturity of the loan ? 

11. Why are certified checks liabiUties? 

12. What is an overdraft ? Why is it a resource ? 

13. What is included under "checks and other cash items" ? 

14. Observe carefully the relation between the following items: 
(a) capital and surplus as compared with cash reserve; {b) capital 
and surplus as compared with loans and discounts; (c) loans and 
discounts as compared with deposits; (d) deposits as compared with 




cash reserve; (e) bonds as compared with circulating notes. (In this 
connection refer also to the chart on p. 63.) 

I S- In what ways do bank deposits arise ? Which way is the more 
common: (a) in saving banks? (b) in commercial banks? 

16. If X deposits money in a commercial bank in a checking 
account, what right does the bank give him? What right does X 
give the bank ? 

17. Do you suppose that the bank keeps the specific funds 
deposited available for repajonent? If not, what becomes of the 
money deposited ? 

18. Suppose that the bank actually loans this money to Y, who 
draws it out of the bank. Have two separate functions been per- 
formed — that of receiving from X, and then loaning to Y; or has the 
bank merely performed the single function of transferring the funds 

19. Is the foregoing a commercial banking operation ? 

20. Mr. A holds a promissory note of B due in 60 days. Needing 
the funds at once, he discounts this at his bank. What does he give 
up to the bank ? What does he get from the bank ? 

21. Is the deposit that one receives in the foregoing case as 
available for use as one created by the actual placing of money in 
a bank ? 

22. As a banker would you have any preference for one or the 
other t)^e of deposit ? ^^, ^ 

23. Wottld-^oiUJsajt-tiMkt a bank makes money on its deposits or 
on its loans arid discounts ?'^ 

24. In the case of a deposit arising out of a loan, there is said to 
be a mere exchange of rights; the bank gives up a present right in 
exchange for a future right. . Do you agree ? 

25. Is the bank performing two separate and distinct functions 
when it exchanges a present for a future right — that is, when it 
makes a discount and gives a deposit, or is this but a single function ? 

26. Does an operation hke the one just described differ in principle 
from the one described in problem eighteen above ? 

27. Does a conunercial bank always give a demand deposit? 
(See statements on pp. 51-53.) 

28. Which analysis of the functions of banking do you prefer, 
the one in selection No. 21 or that in No. 22 ? Are they really in 
disagreement ? 

29. Would a business man regard a bank as an agency for guar- 
anteeing the credit of individuals ? for performing the functions of 
exchanging present for future rights ? to create media of exchange ? 

30. *^From the standpoint of a business man a bank is a place 
where he may leave surplus funds to be withdrawn at his convenience, 


and also a place where he may borrow funds when in need." Do 
you agree ? In the case of a commercial bank, which of these func- 
tions is more important ? 

31. What is the function of a bank from the standpoint of the 
banker ? 

32. A's note is discounted by a bank. In how many ways may 
he be paid? 

33. If paid in money, will he first be credited with a deposit? 
Of what does the deposit consist ? 

34. If he is paid in money, would you say that the money is 
taken out of deposits? 

35. If A draws a check against his deposit account, does any 
money leave the bank ? Suppose he pays B by check and B brings 
the check to the bank and deposits it ? Suppose B asks for cash ? 

36. If A is paid in bank notes, does any money leave the bank ? 
Where does the bank get the notes ? 

37. If A pays the notes to B and the latter takes them to the bank 
and demands gold, must the bank pay him in gold ? 

38. Do you think that it is true that "notes and deposits are 
theoretically identical from the standpoint of banking operations"? 

39. Are there any differences in actual practice between notes and 
deposits ? 

40. What is meant by the following terms: issue, circulation, 
bank currency, deposit currency ? 

41. What determines whether a bank's liability shall appear in 
the form of a note or a deposit ? Which form is the more common ? 
Why ? What changes in practice can you discover ? (See table, p. 62 .) 

42. How do you account for the fact that individual deposits are 
practically equal in amount to loans and discounts in the usual bank 
statement? Consider the following questions in connection with 
your answer: 

(i) Are deposits always greater or always less than loans and 
discounts ? 

(2) When a loan is obtained does the borrower usually draw 
against his deposit at once ? If he does draw at once, does 
he still have a deposit account ? If he does not draw at once, 
why did he seek the loan ? 

(3) Does the use of bank notes affect the ratio of loans to deposits ? 

43. "A bank cannot earn dividends by keeping the funds of its 
depositors lying idle in its vaults. The great problem of banking is 
to find investments which will keep these funds liquid." Is this an 
accurate statement for a conmiercial bank ? 

44. What is the purpose of a cash reserve ? 


45. Would you say that a bank makes loans out of its reserve, or 
on the basis of its reserve ? 

46. Does a merchant whose monthly pa)anents amount to $1,000 
have to keep $1,000 on hand at all times? Would he have to do so 
in case his creditors held demand claims against him ? 

47. How is it possible for a bank to have a cash reserve equal to 
only 15 or 20 per cent of the net deposits ? 

48. May the reserve be regarded as partly till money, and partly 
for purposes of ultimate redemption ? 

49. Why does a bank have to keep a larger reserve than other 
forms of business ? 

50. Upon what factors will the size of the reserve required depend ? 

51. What is meant by a secondary reserve ? Of what may it be 
composed ? 

52. Is a bigger reserve needed against demand than time deposits ? 
Do you believe that a separate reserve should be held for each ? 

53. It is said that a larger reserve is needed where a considerable 
portion of the depositors of cash are immigrants ? Why ? 

54. Which would require the larger reserve, government or indi- 
vidual deposits ? individual or bankers^ deposits ? 

55. If a bank makes loans to four or five times its cash reserve, 
is it not in effect loaning the same nioney four or five times, or at an 
interest rate of from 20 to 30 per cent ? Do you think that larger 
profits are made in banking than in other forms of business ? 

56. Indicate the changes in a bank's accounts involved in the 
following transactions. (The analysis of many items that appear in 
the bank statements given are reserved until the various types of 
loans have been discussed and the relations between banks outlined.) 

(a) Discount $100,000 of commercial paper for 90 days at 5 per 
cent. Eighty per cent of the loan is paid in cash. 

(b) Receive deposits of $10,000, consisting of $3,000 in checks 
drawn by its own customers, $2,000 in checks on other local 
banks, $2,000 in drafts on New York, $1,000 in bank notes on 
other banks, $1,000 in its own bank notes, and $1,000 in specie. 

(c) $50,000 of discounts fall due and are paid. This paper had 
run for two months at 6 per cent. One-fourth of this payment 
is made by a surrender of deposits, one-fourth in this bank's 
own notes, and one-half in cash. 

(d) Buy $5,000 of bonds, paying for them with cashier's checks. 

(e) Declare a semiannual dividend of 4 per cent, crediting 25 
per cent to stockholding depositors and paying the balance 
in cash. Carry the remainder of the undivided profits to 
surplus. The capital of the bank is $1,000,000. 

(/) Create $2,000,000 of certified checks. 




B. Analysis of Bank Loans 

(i) Introductory 

1. "The pivotal thing in sound banking is the character of the^ 
bank's assets." Do you regard this statement as correct? What 
assets in particular are of importance ? 

2. Which is the more important classification of bank loans, by*^ 
time, or by character of security ? 

3. What points of importance may be observed from the classifi-\ 
cation of loans in all banks in the United States ? ) 

4. What marked contrast do you find in the classification of 
loans in New York City as compared with banks as a whole ? 

5. What differences are to be observed in the loan accounts of 
national and state banks ? (See tables, pp. 68-69.) 

6. What is the distinction between commercial paper and col- 
lateral loans from the standpoint of character of security offered ? 

(2) Commercial Paper 

1. A borrows $1,000 from a bank, giving as security a mortgage 
on real estate which he purchases with the money ? Is this commercial 
or investment loaning ? ^ 

2. A bank purchases $1,000 worth of bonds of a railroad company. ^ 
Is this a commercial or an investment operation ? 

3. A bank lends a lawyer $1,000 on his personal note as security. V^ 
Is this a commercial loan? Suppose that the bank requires the 
deposit of collateral as security for the note. Does this change the 
nature of the operation essentially ? 

4. Is a loan made by a bank to an individual for use on a pleasure 
trip a commercial loan ? Is it safe for a bank to make such a loan ? 

5. J. P. Morgan & Company borrows $100,000 from Bank X, -^ 
giving stocks and bonds as collateral security. They use the money 
in their general business. Is this commercial borrowing ? 

6. A manufacturer borrows $5,000 with which to purchase raw 
materials for manufacturing, giving his note as security. Is this a 
commercial or an investment loan ? 

7. A retail storekeeper borrows $1,000 with which to enlarge his v 
store. He gives his promissory note indorsed by another business 
man as security. What sort of a loan is this ? 

8. A manufacturer wishes to purchase new machinery for his 
plant. He procures a loan on his indorsed note. Is this commercial 
business ? 

9. A farmer wishes to buy machinery. If a bank loans him the 
money on his promissory note for the purpose, what sort of a 
loan is it? 


10. Armour & Company borrows $10,000 from Bank Y, giving a 
personal note as security. Is this a commercial loan ? 

11. A bank makes a loan to an individual who uses the money 
in perfecting an invention on which he hopes to realize a fortune. 
How would you classify such a loan ? 

12. A bank loans money to a man who is a promoter of industrial 
combinations. How would you classify this ? 

13. What so^t of a loan would you call one to a country preacher ? 
to a new doctor in a small town ? 

14. What are " character loans " ? 

15. How would you classify a loan made to a broker on the stock 
exchange ? 

16. Would you regard a loan to the son of a retired merchant on 
the basis of his father's good reputation a safe loan ? Would it be 
wise to make many such loans ? Should collateral be required ? 

17. Would it be well to classify such loans as those mentioned in 
questions 11-16 as either speculative or accommodation rather than 
commercial or investment loans? How is accommodation paper 
often defined ? 

18. Is a loan to Mr. A on a note that is indorsed by Mr. B to be 
regarded as real commercial paper ? 

19. Give an example of a loan based on a specific completed 
business transaction. 

20. Is there always an assurance that paper growing out of an 
actual exchange of goods is backed by an equivalent of property ? 

21. Can a bank compel the property exchanged to be used for 
the purpose of hquidating the loan ? If not, can one say that there is 
specific property back of a loan based on an actual exchange of goods ? 

22. Do you think that a single-name note, unaccompanied by 
evidence of specific commercial transactions, is generally safe? Is 
this form of paper common? If such a note were indorsed, would 
it be appreciably strengthened ? 

23. X draws a 90-day bill on Bank A for $1,000 in favor of Y. 
Bank A accepts the bill and Y now discounts the bank acceptance 
with Bank B. Does this give added security to the loan? Is this 
practice common in the United States ? 

24. X secures the indorsement of Y on his promissory note to a 
bank. Does the additional name add anything to the security? 
How does it compare with a double-name paper, one of which names 
is that of a drawee ? 

25. A retail merchant has sold goods to a rural community on 
book credit. Is this book credit a legitimate security for a loan? 
How does it compare with the discounted notes of customers of a 
merchant ? 


26. In the case of a single-name promissory note given as security 
for the loan, who owns the note ? 

27. Are indorsed customers' notes better security than the single- 
name promissory notes? than promissory notes indorsed by an 
outside party ? Who owns the note in this case ? 

28. How do rates on single- and double-name paper compare in 
the New York money market ? 

29. Suppose a merchant secures a loan from the bank, giving 
the bank his own promissory note, but depositing with the bank 
several notes of customers as collateral security? Who owns the 
merchant's note ? Who owns the customers' notes ? 

30. Do you consider paper accompanied by documentary evidence 
superior to ordinary paper ? 

3 1 . What advantage accrues to a bank by virtue of its possession of 
a bill of lading for the goods which are the ultimate security for a loan ? 

32. What advantages accrue from the possession of certificates of 
insurance, master's receipts, consular invoices, health certificates, etc. ? 

33. What test can you lay down for the duration of commercial 
paper loans ? 

34. Does the duration have any effect upon the rate charged? 
(Consult statistics in selection No. 41.) 

35. For how long should a loan be granted for the following 

(a) A retail dealer purchases mixed farm machinery on the first 
of March. 

(b) A wholesale grocer purchases groceries in September. The 
usual terms of sale to retail grocers are 2 months with 10 
per cent discount for cash. Fifty per cent of the customers 
take advantage of the discount. 

36. On what conditions could a year's time be granted on com- 
mercial loans ?^^^i 

37. Should r^SSrol s of commercial paper loans be granted ? Are 
they granted ? 

38. If a bank constantly grants renewals and does not compel a 
periodical settlement entire, is that bank engaged in business other 
than that of banking ? How often should settlements be required ? .y^ 

39. When commercial loans are liquidated, where do the liquidat- 
ing funds come from ? Is not the credit merely shifted to another 
bank ? v 

40. Can all banks all at once require a settlement of all accounts ? \ 
Are the banks as a whole furnishing permanent funds to business I 
as a whole ? /, 

41. If the liquidation is a mere shifting of credit, is commercial 
paper really any more liquid than investment paper ? 



42. What class of national banks engages most largely in invest- 
ment loaning ? 

43. How do you account for the prevalence of investment 
loans? Are such loans more or less liquid than commercial paper 

44. Should you say that a bank should differentiate sharply 
between investment and commercial loans, and safeguard them 
differently ? 

45. Do investment loans have to be long-time loans? Are all of 

46. It is said that genuine commercial loans can never lead to an 
excessive quantity of the medium of exchange. Why ? 

47. What do you mean by inflation, and in what way is it 
dangerous ? This subject is treated more fully in chap, xi a. 

48. In what way do investment loans lead to inflation ? 

49. What is the precise function of the credit department ? 

50. What are the principal sources of credit information ? 

51. What items in a financial statement are of most significance ? 

52. What should be the ratio of quick assets and current liabilites ? 

53. What is meant by audited statements ? 

54. Do you consider it probable that banks are able to secure 
complete and reliable statements from the average mercantile 
house ? 

55. Do you think that reliable information can be obtained from: 
(a) other banks ? (b) competitors of the customer ? (c) creditors of 
the borrower? 

56. What weaknesses are there in the reports of commercial 
ageQcies ? 

^57- What is the relation of a commercial paper house to banks? 

58. Does the commercial paper house purchase the paper it offers 
to banks and merely rediscount with the banks ? 

59. Does the commercial paper house investigate the credit of 
the firms offering paper, thereby reUeving the banks of this necessity ? 
Do they assume the credit risks ? 

60. What is meant by buying commercial paper on 10 days' 
option ? 

61. Is the firm whose paper is offered through a conunercial paper 
house likely to be known to the bank ? Does the bank regard such a 

/rm in the same light as one of its direct customers ? 
62. Is broker's paper more or less likely to be renewed at the 
maturity of a loan than that of direct customers ? Does this make 
it an especially desirable investment ? Why ? 


(3) Collateral 

1. Why are some individuals asked to furnish collateral whil6/^ 
others are not ? Is it a reflection on a man's character or ability to 
have to furnish collateral ? 

2. Would you say that as a general rule time collateral loans 
involve a greater risk element than commercial paper loans? Are 
they extended for commercial, investment, or speculative purposes ? 

3. Indicate the changes in a bank's accounts involved in the fol- ] 
lowing operations: , 

(a) A $30,000 loan is made on the bq.sis of collateral composed of . 
bonds and stock, the margin being 10 per cent. The duration 
of the loan is 3 months, and the rate 6 per cent. 

(b) The foregoing loan is not paid at maturity and the bank : 
sells the collateral for $31,000 net. 

(c) The bank makes a $50,000 demand loan, the present rate ' 
being 2 per cent, and accepts as- collateral stock with a 
margin of 25 per cent. 

(d) The bank calls this loan of $50,000 and it is paid in cash. 
The loan has run for 20 days. The call rate during this / 
period has averaged 2I per cent. / 

4. How do rates on commercial paper compare as a rule witli 
those on time loans secured by collateral? Does this throw any 
light on their relative safety ? 

5. What are call loans? What is the minimum time allowed 
before calling? 

6. May either the bank or the borrower terminate the loan on 
demand ? 

7. Is there any necessity for call loans ? — ^-^ — ———————— 

8. What governs the rates on call loans ? How do call-loan rates 
compare with time-loan rates ? 

9. What are the present rates for call money in Chicago? in 
New York ? 

10.. How is it possible for an individual to pay as much as i 
per cent for the use of money ? 

11. How can banks afford to accept only 2 or 3 per cent oft 
money loaned at call ? Are they not losing on such money ? 

12. May collateral loans be discounted? 

13. What is meant by requiring a margin ? 

14. How large a margin should be required with the following 
collateral: (a) unlisted common stock of a good substantial concern ? 
(b) listed preferred stocks of an industrial corporation ? (c) railroad 
bonds ? (d) municipal bonds ? (e) grain warehouse receipts ? 


15. Are collateral loans in any sense dependent upon the character 
of the borrower ? 

16. Who owns the collateral during the life of the loan ? 

17. What is meant by mixed collateral ? Is there any advantage 
in it? 

18. Consider yourself a stock-broker. Purchase for your cus- 
tomer on a 10 per cent margin 100 shares of stock at par. Borrow 
from a bank on a 10 per cent margin, and put up balance yourself. 

(i) How much does the customer advance ? 

(2) How much do you as broker advance ? 

(3) How much does the bank advance ? 

(4) Who is the nominal owner of the stock ? 

(5) Who has possession of the stock ? 

(6) What is the security for the loan obtained from the bank ? 

19. How can stock that is to be purchased with borrowed funds 
be used as security for the loan itself ? What is overcertification ? 

20. As a matter of fact, is there much danger in this practice of 
overcertification ? 

21. What is the purpose of "morning loans"? Are they any 
safer than overcertification? 

22. What profit does the bank make on overcertification? 

23. Why do brokers secure a proportion of their loans on time 
rather than on call ? 

24. Which would be more liquid, collateral time or collateral 
demand loans ? 

25. In time of financial panic to whom could the banks sell 
collateral held as security ? Are collateral loans really liquid ? 

26. Do investment loans backed up by collateral result in infla- 
tion, or is it only in the case of unsecured investment loans ? 

27. Are the interest rates in New York higher on long or short 
loans as a general rule ? 

28. Compare average time rates with average call rates. Explain 
the facts. 

29. How do the rates on double- and single-name paper compare ? 
Why ? 

30. How do rates on commercial paper compare with those on 
time collateral loans? Is the difference due to greater liquidity or 
greater security ? In foreign countries the opposite facts are found. 

31. Is the sole source of a bank's profit the making of loans and 
discounts ? 

32. On October 21, 1913, the national banks held United States 
bonds to the amount of $50,610,110 as security for public deposits. 
Show how this is profitable. 


33. On the same date the banks also had "on hand** $6,199,710 
in United States bonds. For what purpose have they invested in 
these bonds ? 

34. On January 13, 1914, the national banks of the United States 
held $1,041,698,974 of securities other than United States bonds. 
Could these be used as a basis for note issue ? Is it good banking 
policy to buy bonds in this way ? 

35. Where does a bank get the funds for such investments? 

36. Is a purchase of bonds a different function from discounting 
commercial paper? 

37. What is meant by a secondary reserve? Which do yom 
regard as better for the purpose, bonds, ordinary discounted cus-1 
tomer*s paper, or paper purchased through brokers ? 



A. Within a Given City 

(i) Loaning Relations 

1. How many of the New York banks does the table on pp. 96 
and 97 show to have reached the limit of their loaning power on the 
dates mentioned ? 

2. How great a power of expansion of loans had the New York 
banks as a whole on these date^ ? 

3. Suppose customers of the American Exchange Bank should 
have applied for more loans on September 14, 1907. Could the bank 
have granted them on the basis of^its existing reserve? Would it 
refer the borrowers to a competitor, say, the National City Bank ? 
Would the bank refuse the loan ? 

4. Could a bank with an inadequate reserve borrow directly from 
one of its competitors which happened to have a surplus reserve at 
the moment? 

5. What means were open to the American Exchange Bank on 
September 14, 1907, for replenishing its reserve? 

6. Does the ability of a single bank to use its secondary reserve 
depend in part upon the condition of other banks ? If so, how ? 

7. Does each bank's reserve act as a definite check on its loaning 
power ? Answer this question for all the banks of a given community. 

8. Can a national bank conserve its cash reserve by the use of bank 
notes for over-the-counter payments? Do you imagine the banks 
keep many of their own or other national bank notes "on hand*' ? 

9. Can a national bank enlarge its reserve by exchanging bank 
notes for cash with an affiliated state bank ? Can both banks thereby 
enlarge their loaning power ? 



10. If one large bank in Chicago should restrict loans while the 
others were increasing them, what would be the effect upon the 
reserve of the restricting bank ? on reserves of other banks ? How 
would it come about ? What would be the effect presently upon the 
loaning power of other banks ? Why ? 

11. If all the banks of Chicago should unite in an active lending 
policy, what would prevent an indefinite expansion of loans ? 

12. Before the establishment of the clearing-house how could a 
bank extend its credit at the expense of other banks ? 

13. When a bank borrowed for a day, only, the funds with which 
to pay balances at the Friday settlement, was it really paying its 
balances ? Was it thereby extending its loans to a dangerous amount ? 

14. What caused the banks frequently to draw on each other all 
around between settlement days ? When one bank alone drew against 
a credit in another bank could it increase its reserve ? When they 
all drew at once could the system as a whole expand ? 

15. When a clearing-house bank at the present makes loans at 
eleven o'clock to brokers (after hearing from the clearings), does it 
thereby gain an advantage over a competitor ? If a loan for $10,000 
at 2 per cent is called the next day, how much is the profit gained by 
making the loan ? 

16. If all the banks follow this policy, do they enlarge thereby 
their working capital ? 

17. Can a bank control the volume of its clearings so as to secure 
a favorable balance for a given day ? 

18. If there is a limit to the expansion of loans in a given city, 
may the banks there borrow from those of other cities ? (See sec. B.) 

(2) Clearing-houses 

1. For what reasons do banks have to makfe settlements with 
each other ? 

2. Why does not each bank require every other bank in the 
community to do its own collecting ? 

3. What is the original and chief purpose of clearing-houses ? 

4. Which do you believe was the stronger reason for the establish- 
ment of the New York clearing-house, the expense and loss of time 
in settling balances or the competitive difficulties connected with the 
weekly settlement of balances ? 

5. Can the total amount due to the clearing-house exceed the 
total amount due from the clearing-house ? 

6. What is the amount of the daily clearances at New York City ? 
at Chicago? 

7. In the illustration given in selection No. 48, if bank 7 exchanged 
checks with each of the five banks individually insteacj of through 


the clearing-house, how much cash would be required to settle 
balances ? 

8. What kind of items are "cleared"? Are bank notes sent 
through the clearing-house like checks ? 

9. How would a bank that was not a member of a clearing-house 
collect items on other banks in the sanie community ? ^-^ 

10. What is meant by a non-member bank "clearing through a 
member bank"? 

11. What means of settling clearing-house balances is most 
used ? 

12. Do you see any disadvantage in using cash in settlements? 
Any advantage ? 

13. Does the clearing-house certificate have any advantage over 
cash as a means of settlement ? Why do not all clearing-houses use 
this means ? 

14. With what form of our currency are the clearing-house cer- 
tificates practically identical ? (The function and use of 3ie clearing- 
house loan certifica,te are discussed in selections Nos. 94 and 95.) 

15. Why are clearing-house certificates issued only in large 
denominations ? Is there any vaUd objection to their use ' as a 
general medium of exchange ? 

16. What is the advantage of borrowing and loaning balances ? 
Is there any disadvantage ? 

17. Would you favor loaning balances with or without interest? 

18. Describe the precise manner in which a balance might be 
settled by "manager's check." 

19. It is said that the "clearings" afford an excellent barometer 
of business conditions. Why ? 

20. Which would be better for this purpose, the New York or 
the Chicago clearings ? Why ? 

21. Compare the total amount of clearings for the Chicago banks 
in July and October of any year. 

22. Compare the total clearings of Chicago bianks for some month 
in 1908 and for the same month in 1906. Compare the present 
statement with that of a year ago. Why these variations ? 

23. Do you regard the fixing of uniform interest rates on deposits 
as a justifiable practice ? Does it not smack of monopoly ? 

24. Do all banks pay interest on checking accounts? Should 
they ? If they did, would it affect the rate of interest on loans ? 

25. In the absence of a rule in this connection is there a likelihood 
that unsound banks may attempt to draw trade by a good interest 
rate on deposits, to the detriment of sound banking ? 

26. Why have clearing-house banks almost universally failed to 
make definite agreements as to rates on loans ? 


27. Do you think that there are wide variations in the loaning 
rates of local banks ? (Consult daily quotations.) 

28. Do you imagine that there are often local "understandings" 
not to cut below a certain rate ? 

29. It has been frequently suggested that a committee of bankers 
should be appointed by the clearing-house to meet every day and 
determine what the rate of call loans should be for that day, and 
make this rate binding on all the member banks and the institutions 
that cleared through them. The membership of this committee 
under such a system would be changed frequently, say once every 
month. Would such a plan possess any advantages ? Would it not 
be monopolistic ? 

30. Why have many clearing-houses been led to adopt uniform 
charges on collections ? Why is such a method hard to enforce ? Is 
it not an attempt to restrain trade ? 

31. Is it your opinion that the banks make a great deal of profit 
on their collections? 

32. Does the development of these various regulations and agree- 
ments indicate that there is the same tendency in the banking as in 
other fields to eliminate ruinous competition? Do you feel that 
there is grave danger of monopoly here ? 

33. What caused the resort to clearing-house bank examinations ? 
What right has an association of banks to examine the affairs of 
an individual bank ? Would it have any right to examine a non- 
member bank ? 

34. What advantage has a clearing-house examination over a 
government examination ? 

35. Do you believe that one can properly say at the present time 
that our banks are independent, competing institutions, "looking 
out solely for number one" ? 

B. The System as a Whole 

(i) General Relations 

1. Enumerate the various ways in which a payment at a distance 
may be made. 

2. Is it advisable to send a check on a local bank in payment of a 
debt in another city ? What advantage does a bank draft have for 
this purpose ? 

3. What is meant by the expression "exchange on New York"? 
What is meant by paying 15 cents for "exchange" ? • 

4. What is meant by a "correspondent" bank? 

5. What services do correspondent banks perform for each 


6. What determines upon what city "exchange" will be drawn » 
in any given instance ? 

7. Why are bank drafts on New York practically always accept- 
able exchange ? 

8. A in Aurora, Illinois, sends a check to B in Albany, New York, 
who cashes it at his local bank. Describe the probable process of 

9. A in Chicago owes B in Grand Rapids $1,000. B has his bank 
in Grand Rapids collect the amount for him. Describe the process. 

10. How do you explain the lost motion often found in the 
collection of checks ? 

11. Why are banks obliged to keep funds on deposit in certain 
other cities? Mention all the causes that might require shipments 
of specie from town to town. 

12. What causes the concentration of funds in great financial 
centers ? 

13. Which is more important, the depositing of reserves or the 
depositing of surplus cash in financial centers? Which is more 
dangerous ? 

14. Are the reserves deposited in New York also counted as 
reserves for the New York banks ? 

15. What use was made by the New York banks of these outside 
funds ? 

16. What induced the coimtry banks to send cash in excess of 
reserves lo the financial centers? Can they not ordinarily make 
more by using these funds for local loans ? 

17. Has it been the custom for all the New York banks to pay 
interest for the purpose of attracting deposits ? 

18. On what grounds has the clearing-house association opposed 
the practice? What forces have prevented the abolition of the 
practice through clearing-house action ? 

19. Bank A in Ottumwa, Iowa, rediscounts a note of $500 with 
Bank B in St. Louis at 5 per cent. This note has 30 days yet to run. 
It had originally been discounted at 6 per cent for 3 months. Make 
the necessary entries for both Bank A and Bank B in consequence 
of this operation. 

20. Why should rediscounts in this way have been looked upon 
with more or less disfavor, especially in New York ? 

21. Are the various otiier means of intersectional borrowing that 
have been devised any less objectionable or dangerous than re- 
discounting ? 

22. Why does conmiercial paper purchased through brokers fur- 
nish a good secondary reserve ? How does the sale of such paper 
differ from a rediscount ? 


(2) Periodic Tension and Ease in the System 

(a) Seasonal 

1. What causes influence the demand for money in New York at 
each of the five seasonal swings ? 

2. What variations from the New York movements are found in 
other centers ? To what causes are they due ? 

3. Does the volume of bank-note circulation in New York bear 
any noticeable relation to these movements ? (See chart, p* 126.) 

4. What can you learn from the chart on p. 127 ? 

5. What items make up the cost of moving currency from one 
community to another? 

6. What is meant by a premium on exchange? What is the 
maximum premium that may exist in any given case ? 

7. Under what circumstances will New York exchange, say in 
Chicago, be at a premium ? 

8. Why is it not possible for a given community to send specie 
away until the entire supply is exhausted ? 

9. Read selection No. 64 and note how exchange rates and move- 
ments of specie compare with the seasonal variations in demand for 
currency in Chicago. 

10. What effect does the pa3ahent of interest on bank deposits 
in New York have upon exchange rates in Chicago ? 

11. Do you think that there is much correlation between com- 
mercial failures and seasonal fluctuations ? 

12. What factors govern the total amount of gold in a country? 

13. What is meant by the term "elastic currency'^ ? 

14. Is there any elasticity in the following forms of our cur- 
rency: (a) greenbacks ? (^) Treasury notes of 1890? (c) silver dollars ? 
(d) silver certificates ? (e) gold ? 

15. To what forms of currency must we look to give the necessary 
elasticity to the system ? 

16. What does the chart on p. 138 show as to the elasticity of 
bank notes and deposits? (For the reasons for the inelasticity of 
bank-note currency, see selection No. 92.) 

17. What are the limits to the expansibility of deposit currency? 

18. Why does not deposit currency satisfactorily meet the require- 
ments in crop-moving times ? 

19. Should the government plan to keep in the Treasury a 
permanently large cash balance ? 

20. Is it inevitable that at certain seasons of the year a consider- 
able balance will be in the Treasury ? 

21. Is it possible for the government to make its periods of large 
balances coincide with the dull seasons in trade and vice versa ? 



22. Is it your opinion that government balances should be turned 
over to the banks for use ? 

23. Why was it ever thought desirable to have the Treasury 
independent of the banks ? 

24. Ought not the banks be compelled to keep a reserve against 
public deposits ? Do you think it necessary for the banks to put up 
collateral security for the funds deposited with them ? 

25. Can you see any objections to the system of depositary banks ? 

26. Was the means employed by the Treasury in the autumn of 
191 2 an adequate way of giving the necessary expansion ? 

27. Was the method employed in 1913 any more satisfactory? 
Was this, in your opinion, a scientific method of handling the problem 
of seasonal stringency as a whole ? 

(b) Cyclical 

1. What is meant by the following terms: (a) cycle? (b) crisis? 

(c) panic? 

2. Into what four phases may the economic cycle be divided? 
What are their relative durations ? 

3. Following a period of depression, what factors in the business 
world are conducive to an expansion of business activity ? 

4. What events hastened the expansion of business in 1897 ^^^ 
1898 ? 

5. Trace the effects of a bountiful harvest in accelerating business 
throughout the industrial field. (Selection No. 10 should be read in 
connection with selection No. 74.) 

6. Trace the effects of great activity in the iron and steel industry 
in other lines of business. 

7. In periods of depression employment of labor is intermittent. 
Trace the effects of steady employment with the return of prosperity 
upon the activity of business in general. 

8. Is the increased purchasing power of 'laborers due more to 
increased money wages or to steady employment ? 

9. What causes prices to rise in a period of expanding business ? 
Which rise faster, prices or money wages ? 

10. Does the cost of production rise as additional products are 
turned out ? Is the margin of profit large in a period oi expansion ? 

11. To what extent do you believe that business psychology 
plays a part in the rapid expansion of business ? 

12. At what point does increased business begin to entail very 
heavy additional costs? Enumerate the ways in which costs are 

13. Just when would you say that the business situation enters 
the critical stage ? 


14. What is meant by a process of retrenchment or liquidation ? 

15. Is it possible that a process of gradual liquidation super- 
induced by the stress in various parts of the credit structure might 
bring about a readjustment of business without serious disaster to' 
the system as a whole ? Are numerous failures probably inevitable 
during the readjustment period? 

16. Why do panics usually occur during the spring or autumn 
months ? 

17. What are the most conspicuous features of the period of 
depression ? 

18. What factors govern the duration of the depression ? 

19. "Our commercial banks are in very close relationship to 
every phase of the credit cycle. Properly managed they could control 
the expansion of business and keep it within safe bounds/' Do 
you agree? 

20. Do you find by reference to the table on p. 161 that the 
national banks were tending to check undue or overrapid expansion ? 
What requirement appears in fact to have marked tie limit to the 
extension of bank loans ? ^ 

21. Note that the banks of Chicago and St. Louis cut below the 
25 per cent reserve requirement nearly every autumn. Was this 
warranted? If they had been more conservative during the rest of 
the year, would it have been necessary for them to cut below the 
minimum reserve in this wav ? 

22. Did the state banks and trust companies follow a policy of 
expanding loans similar to that of the national banks ? 

23. By reference to the table on p. 165 note whether the banks 
as a whole made any effort to bring about a gradual liquidation after 
it became generally apparent that a severe crisis was immment. 

24. W^hy were not strong warnings such as the one sounded by 
Mr. McDougal before the New York State Bankers' Association 
heeded ? Did some bankers heed it and adopt a policy of retrench- 
ment ? Are there always many hopeful prophets at such a period ? 
Which is more likely to be believed by the rank and file ? 

25. Is it your belief that bankers as a group share the general 
optimism that pervades the industrial world during a period of 
expansion ? 

26. Was the system of redepositing reserves a cause of an expan- 
sion of bank loans or merely the means by which undue expansion 
could be legally accomplished? Does the system of redepositing 
reserves tend to conceal the extent of the inflation that is taking place ? 

27. Show how the system of independent banking is the cause of 
inflation ? Is it possible for a few wise bankers to check an expansion 
by means of retrenchment ? . 



28. "In time of crisis the business world must look to the banks 
for aid. Upon the ability of the banks to extend accommodations 
as required depends the possibility of weathering the storm." Do 
you agree ? 

29. What are the reasons why business men seek heavy additional 
acconmiodations from the banks in time of crisis? (See p. 25; also 
selection No. 89.) 

30. Assume a bank in New York to have deposits of $1,000,000 
with a reserve of $275,000 or 27.5 per cent. Assume now that addi- 
tional loans are made to the extent of $100,000, and that depositors 
withdraw $50,000 in actual specie. What is now the ratio of reserves 
to deposits ? 

31. In time of crisis of what value are redeposited reserves ? 

32. "In time of crisis we have it clearly revealed to us that our 
banking institutions constitute a system and that individual banks 
cannot look to each other for aid." Is this true ? 

33. Why are the New York banks in a position of tremendous 
responsibility in time of crisis? With reserves practically at the 25 
per cent limit at the beginning of trouble is it possible for them to 
maintain specie payments for long ? 

34. The fundamental need in time of crisis is to expand loans, 
and to do this requires an increase of reserv^es. The following means 
of expanding reserves are possible, theoretically speaking: (a) by a 
reduction of existing deposits; (b) by the sale of securities; (c) by 
rediscounting; (d) by deposits of actual cash; (e) by bringing in 
cash from abroad; (/) by the creation of new currency that is 
either directly or indirectly available as reserve money. 

(i) What form of deposits can be quickly terminated ? Can the 
collateral for call loans be sold for cash in time of crisis ? 

(2) Can securities be sold? With whom can notes be redis- 
counted ? < 

(3) In practice are individual deposits of cash increased or 
decreased ? 

(4) To what extent has aid been secured from the United States 
Treasury to meet the needs ? 

(5) To secure the importation of specie from abroad a strong 
central institution which can raise the rate of discount is 
said to be required. Why cannot individual banks do the 
same thing ? 

(6) What form of currency may be manufactured in time of 
crisis ? Is it directly available for reserves ? Is it indirectly 
available ? Practically speaking, why can very little of this 
form of currency be procured for use in time of crisis ? 



35. Which is demanded more largely in time of crisis, additional 
bank notes or additional deposit currency ? 

36. Explain how the practice of paying interest on bank dep)osits 
in New York prevents a contraction of bank-note currency ? 

37. How do clearing-house loan certificates differ from clearing- 
house certificates ? 

38. Why was the provision for the equalization of reserves so 
necessary to the successful use of loan certificates ? 

39. What is the relation of the practice of paying interest on 
deposits to the problem of equalizing reserves? Why could not the 
practice of paying interest be eliminated by clearing-house action ? 

40. Do you find in the history of the attempt to pool the reserves 
a weakness inherent in independent banking ? 

41. Explain how it is that the resort to clearing-house loan cer- 
tificates by all the New York banks simultaneously, as in 1907, 
defeats the very purpose of this loan expedient. 

42. At best does the use of clearing-house loan certificates with 
equalized reserves reach the heart of the difficulty in time of crisis ? 
Is not some further means of expanding deposits necessary ? 

43. Do you regard the various forms of loan certificates and 
checks used in 1907 as amply secured ? 

44. What inducement was there to their retirement as soon as 
the need for their use had passed ? 


A. Governmental Supervision 

1. Is it possible for the government to regulate a bank that is, 
not incorporated ? What is the purpose of incorporation ? x 

2. What is meant by free-banking ? In what ways is this superior 
to special incorporation ? 

3. Are there any valid arguments in favor of private banking? 

4. Are the private banks of some states subject to government 
supervision ? 

5. While it is true that the depositors of a solvent private bank 
may be obliged to stand losses suffered by the banker in ventures 
other than that of banking, is it not equally true that if the bank 
becomes insolvent the depositors may recoup from the assets of 
those other businesses, which may be solvent ? 

6. Do you think that in practice both the bank and the other 
ventures are likely to be involved in common trouble ? Where are 
the larger assets likely to be found, with the bank or with the other 
ventures ? 


7. Give a summary statement of the functions of the Comptroller 
of the Currency. 

8. What is the purpose of bank examinations ? What use is made 
of the examiner's reports ? 

9. What are the nature and functions of the Federal Reserve 

10. Do you agree with the argument in selection No. 103 or 
selection No. 104? (For a full discussion of the Federal Reserve 
Board, jee chap, vii.) 

B. Regulation of National Bank Operations 

1. What is the purpose of requiring a minimum capital for banks, 
varying the amount with the size of the city in which it is located ? 

2. Is $25,000 too high for country banks? Is $200,000 too high 
for city banks ? 

3. On numerous occasions a number of banks have been organized 
with a small capital in villages that were about to be annexed to 
Chicago. Is this evidence that the minimum is too high in Chicago, 
or is it evidence that the minimiun is necessary to prevent an excess 
of small banks ? 

4. Are the banks in the residence sections of cities usually national 
banks ? Are they often private banks ? Would not small national 
banks be an advantage in such districts ? Would not city branches 
of the large metropolitan banks be advantageous ? 

5. What is the purpose of compelling national banks to accumu- 
late a surplus ? 

6. What is the purpose of the double liability of stockholders of 
national banks ? 

7. What is the purpose of a minimum reserve established by law ? 
Judging from the analysis of banking operations made in the preceding 
chapter, do you think that legal minimum reserve is necessary in the 
United States ? Is it as necessary as formerly ? 

8. In the absence of a legal reserve do you believe that most 
bankers would keep as much reserve as at present ? 

9. How did Congress decide how large a minimum reserve was 
necessary ? 

10. "If the law says that no bank may cut below a reserve of, 
say, 18 per cent, that reserve becomes a non- usable reserve, and 
therefore worthless so far as being an aid in time of emergency is 
concerned." Discuss. 

11. What is the purpose of dividing the country into three classes 
of banks for reserve purposes ? Does not a country bank require as 
great a reserve as a city bank ? 


12. Explain how it was possible, in view of the high reserve 
requirements, for national banks, as a whole, to have in 1906 reserves 
of only 12.7 per cent. (See table, p. 161.) 

13. What is the penalty for cutting below the minimum reserve 
requirement ? Is this always enforced ? 

14. A bank has to keep a reserve somewhat in excess of the 
minimum requirement in order to have till money with which to 
make such cash payments as are necessary. How much appears to 
be necessary for this purpose ? (See table, p. 97.) 

15. Why were national banks, prior to 19 13, not allowed to make 
loans on the basis of real estate security ? Are real estate loans unsafe ? 

16. Would there be any objection to making loans on real estate 
if demand obligations were not created against such loans and if the 
bank should conduct a separate department for such loans ? 

17. Practically speaking, do you think that the prohibition of 
real estate loans has been a serious handicap to national banks in 
country towns ? In what ways ? 

18. Under the federal reserve system real estate loans may be 
made with certain qualifications. Which is the most important of 
these qualifications ? 

19. Why has it been deemed wise to limit the amount of loans 
to one party to 10 per cent of the bank's capital and 10 per cent of its 
surplus (never in excess of 30 per cent of the capital) ? 

.20. Why should not bills of exchange, etc. (see p. ^11, b), not be" 
considered as money borrowed ? Do you believe that this provision 
is an ample safeguard ? , 

21. Why should not a bank accept as collateral for a loan its own 
stock ? Was there ever a time in our history when the banks followed 
this practice ? 

22. What appear to be the most prevalent causes of national 
bank failures? 

C. Regulation of State Banking 

1. How does'the number of state banks compare with the number 
of national banks? 

2. How do state and national banks compare as to size ? national 
banks and trust companies ? 

3. How do you account for the enormous number of state banks ? 
(See if you can find an explanation from selection No. 171.) 

4. What differences of importance do you find between state and 
national legislation on banking ? 

S- Does it seem to you that national banks are any safer than ' 
state banks ? 

6. Are state banks commercial banks ? Why ? 


7. How do you account for the rise and great growth of trust 
companies ? 

8. What gave to these institutions the name of trust company ? 

9. In which functions of trust companies are we here interested ? 

10. Is not the service performed by a trust company as trustee 
under a will a form of banking in that the trustee handles the invest-'' 
ing of the estate ? 

11. What types of banking operations do you find performed by 
the trust company ? ^ ^^ 

12. Would you say that a trust company is primarily a commercial 
bank? (Look up the statement of a trust company.) 

13. Do you find that the regulation of trust companies by the 
various states is stringent enough ? ^ 

14. Is there any reason why trust companies should >have fewer 
restrictions than state or national banks? 

15. Do the statistics of failures of trust companies indicate that 
they are as safe as other forms of banking institutions? Compare 
the table on p. 224 with the chart on p. 216 and estimate the amount 
of loss as between insolvent national banks and trust companies. 

/^ D. The Regulation of Note Issues^ 

1. What function of baiij^ing is the most closely related to the 
subject of money ? 

2. Is it necessary to maintain bank notes at a parity with gold^- 
Explain your answer. 

3. If bank notes were not legal tender, would it be necessary to 
maintain their panty with gold ? 

4. Is it necessary to maJke bank notes legal tender? Are our /^ 
present notes legal tender ? ' 

5. What are the three great problems of regulation of note issues ? ^^ 
Which is of greatest importance ? 

6. Enumerate the various methods by which bank notes may u- 
be kept at a parity with gold. 

7. What is the advaCntage of local as compared with central 
redemption ? 

8. Which of the methods of securing "liquidation'* parity do 
you think most satisfactory ? 

9. Offhand, do you have any decided preference for one form of 
securing bank notes over another? (Final judgment should be 
reserved until the history of various note systems has been studied.) 

'Note. — The student should read selections Nos. 118 and 119 carefully, 
and then test the principles there outlined by reference to the various historical 
experiences with note issues which follow. 


10. Judging from the analysis made in the preceding chapter, 
which is more important, emergency or ordinary elasticity? expan- 
sion or contraction of note issues ? 

11. State in your own words the "currency" principle; the 
V "banking" principle. 

12. Do you agree with Pierson^s analysis of the controversy over 
"currency" vs. "banking" principle? If you do, what practical use 
should be made of this conclusion ? 

13. Why did not the pledge of real estate as security for the notes 
of the Rhode Island Bank serve to keep them at par ? 

14. Did the legal-tender clause give them value ? Did the imposi- 
tion of fines for non-acceptance of bills on a parity with specie avail 
anything ? Why ? 

15. In what way was the debt extinguished in Rhode Island? 

16. Why should not the holders of farm mortgages have accepted 
^ at par the paper currency secured by the farms which were mortgaged ? 

17. Does it appear from the Rhode Island experiment that bank 
issues may prove quite as disastrous as direct government issues ? 

18. In the early history of the United States which were more 
important, notes or deposits ? 

19. Were the issues discussed on p. 239 pure credit or free 
issues ? * 

20. How do you account for the prevalent attitude of the time 
toward specie redemption ? 

21. Are any of the devices resorted to in order to avoid redemption 
of bank notes warranted from any point of view ? 

22. What were the economic results of such practices? 

23. What light does the American experience prior to the Civil 
War throw upon the necessity of requiring banks to hold a minimum 
legal reserve, whether for notes or for deposits ? 

24. Were the legislatures of the period any wiser than the 
bankers ? 

25. What was the nature of the Louisiana system? Which was 
i/^the more important provision, the requiring of a large reserve or 

that loans should be made only on commercial paper ? 

26. What is the importance of the free-banking system ? Is the 
r name "free-banking" derived from the principle governing note 

issues? (Compare selection No. 97.) 

27. Why did not the free-banking system work well in the West ? 

28. What important principle was adopted in the case of the 
safety-fund banks ? 

29. What important amendment was made in 1842 ? 

30. What proposal of the present day has been likened to the 
safety-fund system ? Is it strictly analogous ? 


. • 

31. Does the failure of the safety-fund system indicate that the 

principle was wrong ? 

/^ 32. What is meant by asset currency ? 

r 33. What is the distinction between assets and bonds? Are not 

bbnds assets ? 

/ 34. Why will notes based on assets expand when business needs 

increase ? 
V. 35. Is there any delay whatever in the issue of asset currency? 

How do banks get such notes into circulation ? 
)/ 36. What guaranty is there that there will not be more issued 

than is demanded? Can there be more bond-secured notes issued 

than is required ? 

37. Would it be wise to give a prior lien to note-holders and make 
the assets of the entire system responsible in case those of a given 
bank proved insufficient ? 

38. Do you think that notes protected by assets are as safe as 
Vthose protected by bonds ? 

39. Were not the notes issued by the state banks, when little if 
any reserve was kept, really asset notes ? 

40. Does the use of asset currency require a substantial reserve ? 

41. Why is redemption essential to a system of asset notes? 

v/ 42. Explain how competition between banks forces redemption 
of asset currency? 

43. Is our present system of deposit currency based on the asset 
principle ? Are checks promptly redeemed ? Why ? 

44. Do you not think that it would be necessary to require notes 
to be sent back to the issuing bank for redemption ? 

45. How are Canadian bank notes redeemed? Why are they 
redeemed promptly ? 

^ 46. Why is the average life of a Canadian bank note so 
*^^short ? 

47. What plan of redemption of bank notes was followed in the 
*^Suffolk bank system ? 

48. Does it indicate that a central redemption scheme is superior 
to local redemption ? 

49. Note the date of the inauguration of the Suffolk system. 
Do you ipaagine that this system of note issues was of practical 
importance to the business of New England ? 

50. Does the use of depreciated bank paper give rise to the 
^operation of Gresham^s law ? 

51. During most of the period preceding the Civil War what form 
of money, chiefly, was in circulation in the United States ? 

52. Do you believe that the several thousand varieties of bank 
notes in existence were conducive to good business morality ? 


53. What reasons are assigned for the use of bond-secured notes ? 
Is any cash reserve kept under such a system ? 

54. Do bond-secured notes constitute credit currency ? 

5$, Suppose that a bank should fail. Would the holders of notes l 
be satisfied to take the bonds ? Could they readily convert the bonds ' 
into cash ? Would the government furnish the cash ? 

56. Are government bonds alone permissible for security ? 

57. What are.the weaknesses of the bond-secured system? 

58. Is there ever any certainty that the amount of bonds available 
will be suflS-cient to meet the need for currency ? 

^ S9- "As the price of bonds increases profit on the bond circulation 
^ decreases." Why or why not ? 

60. "An increase in the market rate of interest reduces the 
/relative profitableness of note issue." Why or why not? 

61. Under what conditions would banks normally invest in bonds 
as the basis of circulation ? 

62. On the whole, are bonds for circulation purposes most likely 
to be purchased when needed least, and vice versa ? 

63. How promptly must notes be furnished in order to give the 
requisite elasticity? How long was required under our national 
banking system ? 

64. Does the safety of bond-secured notes counterbalance their 
inelasticity ? (Recall the analysis of the preceding chapter.) 

65. Do you agree with the charges made in selection No. 127? 
How do you account for such a point of view ? \ 

66. Is there not a double profit on bank-note issues ? Does not ^ 
the Comptroller's own computation indicate a double profit? 7 

67. "When the rate on loans is 5 per cent and a 25 per cent 
reserve is required, a bank may, through the use of deposit currency, 

|/^inake loans on the basis of $1,000 reserve to the extent of $4,000, 
' thereby receiving a gross profit of 20 per cent. But if it takes $1,000 
and purchases bonds which are not good as reserves, it can earn only 
5 per cent plus 1.388 per cent." Do you agree with this analysis? 

68. Suppose that when a bank has secured the $1,000 in notes it 
uses them as till money for over-the-counter payments, thereby 

/^conserving its specie reserve. Would not the bank's gross profit 
from the use of notes then amount in effect to 20 per cent plus 1.388 ? 

69. Is there anything to prevent a national bank from taking 
^out notes and exchanging them with affiliated state banks or trust 

companies for specie, the state banks then using the notes as reserve ? 

70. What would be the effect of such a practice upon the ratio of 
specie to demand obligations in the banking system as a whole ? 

71. How do you account for the fact that the national banks 
have issued only about 70 per cent of the amount of notes which 


under the law they might issue ? Why have the country banks more 
nearly done so than the city banks ? (See table, p. 62.) 

72. In the light of your study of the history of note issues in the 
United States, outline the system of issue and regulation which you 
regard as most satisfactory. 



A. General Description of the System 

1. Draw up a summary statement of the causes leading to the 
passage of the Federal Reserve act. 

2. Do you think that the desire to cheapen money was largely 
responsible for the popular support of the measure? Was this a 
survival of the old greenback and free-silver philosophy ? 

3. Was financial concentration in Wall Street regarded as a 
serious menace in the greenback and free-silver days ? 

4. Does the federal reserve system introduce substantially new 
principles of government regulation of banking? (See selections 
Nos. 100-103.) 

5. Does the act put banking into politics ? 

6. Are the advantages of a district over a central bank plan mainly 
political or economic ? What do you mean by economic advantages ? 

7. Do you feel that the Organization Conmiittee adopted a 
scientific means of ascertaining the best plan of "districting" the 
country ? 

8. To what extent do you feel that the criticisms that have been 
raised to the choice of districts is warranted ? 

9. Do you think that it was wise to make twelve districts at the 
outset ? 

10. Are there any powers vested in the Federal Reserve Board 
that you believe* to be arbitrary or dangerous? 

11. What is the purpose of the Federal Advisory Council ? 

12. What are the general functions or purposes of the federal 
reserve banks? Would you say that they are mainly emergency 
institutions ? 

13. If the federal reserve banks should fail to earn dividends, 
might they nevertheless be regarded as successful institutions? If 
so, under what circumstances ? 

14. Are the relations of the federal reserve banks to be primarily 
with the public or with member banks ? 

15. What is the purpose of having various classes of directors for 
each federal reserve baaik? Practically speaking, do you suppose 
that they will be able to give a superior order of management ? 



16. Do you regard election of directors by groups of banks as of 
practical importance ? If so, in what way ? 

17. What is the purpose of the federal reserve agent, and how is 
he chosen ? ' 

B. The Practical Working of the System 

1. Is the old system of bond-secured bank-note currency issued 
by independent banks entirely eliminated ? 

2. Do you consider it probable that the banks will take advantage 
of the opportunity to retire their notes ? Where is retirement likely 
to be more rapid, in city or in country banks ? Why ? 

3. Do you think it likely that the law will be modified so as to 
permit a complete retirement of the present bank notes? Should 
it be? 

4. Would it not have been preferable to take away from the banks 
all power of issue ? What would have happened to the price of United 
States bonds if the issue privilege had been abolished ? 

5. What is the object in having the reserve banks issue bond- 
secured notes? May they issue them only on bonds bought from 
member banks ? 

6. Is there likely to be any reduction in the total volume of 
bank-note currency ? 

7. Does it strike you that the means of retiring the notes is fair 
to all parties concerned ? 

. 8. What inscription is found on the federal reserve or asset notes ? 
What is the security back of them ? 

9. It is crop-moving time. Show by a concrete illustration how a 
country bank, say, in Illinois, could procure $5,000 of additional 
notes for the needs of its customers. 

10. By what means is contractility of this asset currency secured ? 
Show concretely the various means by which the $5,000 of notes 
mentioned in question 9 might be returned to the issuer and canceled. 

11. What provisions in the act are most likely to secure the neces- 
sary contraction of issues for seasonal demands ? 

12. What factor is likely to cause contraction more quickly in the 
case of emergency issues ? 

13. "In time of crisis a large power of expanding loans is now 
available by virtue of the centralization of reserves that has been 
provided." How? (See selections Nos. 144 and 147.) 

14. The First National Bank of Milwaukee finds itself in time of 
crisis with a reserve of only 15 per cent. Show to what extent it 
could expand its loans to borrowers through the rediscount of $10,000 
of commercial paper with the federal reserve bank of Chicago. 


15. Bank A in Akron, Ohio, has in its portfolio $5,000 of accept- 
able commercial paper which it had discounted on August i at 5 
per cent, the date of maturity being November i. On September 15 
this paper is rediscounted with the reserve bank in Cleveland at 
si per cent. Make the necessary changes in the statements of Bank 
A and of the reserve bank. On October i the loan is paid. Make 
the necessary entries. In what different ways might it be paid ? 

16. How far could Bank A expand its loans on the basis of this 
rediscount of $5,000 of conunercial paper? 

17. What are the limits to the expansion of deposit currency 
through the process of rediscounting ? 

18. What is meant by raising the rate of discount? What is 
its purpose? It is said that it has both a negative and a positive 
effect. Explain. 

19. Who has final control over the rate of discount? 

20. In your opinion is there adequate power of expansion of 
deposits ? (Consult the daily press for present reserves of the federal 
reserve banks.) Are the present reserves unnecessarily high ? 

21. What is meant by an open discount market? What form of 
credit instrimient appears to be essential to its success ? 

22. By what means may one reserve district be made to aid 
another in time of stress ? 

23. Do you deem it a wise provision to allow the reserve of 35 
per cent to be cut under in case of emergency? Is it amply safe- 
guarded ? 

24. In making a rediscount the member bank may. secure either 
bank notes or a deposit account. Which form will give the larger 
power of expansion ? Why ? What will determine which form the 
loans will take ? 

25. Is there any reason why notes based on rediscounted com- 
mercial assets should not be counted as reserve that does not apply 
in the case of deposits ? 

26. What reserves are required for the member banks? (See 
selection No. 104.) How great a reduction is this from the former level ? 

27. May outlying banks still deposit funds in New York for use 
in stock-exchange speculation ? 

28. Consider yourself a merchant in Chicago. Sell $1,000 of 
goods to A in New York on 3 months' time. Draw an acceptance 
against the National City Bank of New York for the amount. How 
can you obtain cash before the expiration of the three months ? 

29. What arrangements would A in New York have to make with 
the National City Bank ? 

30. Why can one obtain funds more cheaply by means of the 
acceptance than by his direct note? 


31. Is the acceptance a particularly advantageous source of profit 
to a bank ? Does a bank loan money when accepting bills ? 

32. Why do bank acceptances have a wider and quicker salability 
than an ordinary note or bill of exchange ? 

33. Are yidividuals likely to purchase acceptances for investment 
purposes ? 

34. If you purchased an acceptance, would you look to the char- 
acter of any names on the paper other than that of the bank ? 

35. By what means does the Federal Reserve act attempt to set 
a limit to which member banks may make acceptances ? Is there an 
absolute limit set ? 

36. What is the purpose of limiting bank acceptances to business 
operations that do not call for a renewal at date of maturity ? 

37. What is the purpose of giving a preference to bills drawn 
against "actually existing values"? 

38. Is the limitation on acceptances by member banks wise ? 
Do you think the extent to which they may accept at any time 
within the maximum allowed should be regulated by the Federal 
Reserve Board ? 

39. What is the distinction between foreign and domestic accept- 
ances ? What is the purpose of including domestic acceptances ? 

40. What is the purpose of requiring that domestic acceptances 
shall be based on actual shipments of goods evidenced by shipping 
documents or be secured by warehouse receipts on readily marketable 
staples ? 

'41. What is meant by "dollar exchange''? In what way is it 
thought that it will prove an advantage to the United States ? 

42. How do open-market operations differ from transactions with 
member banks? 

43. What is the purpose of permitting the federal reserve banks 
to deal in cable transfers, United States bonds, notes, revenue war- 
rants, etc., gold coin and buUioh, and bills of exchange ? 

44. How do the domestic bills of exchange discussed on p. 317 
differ from the domestic acceptances discussed in selection No. 154? 

45. What is the purpose of permitting federal reserve banks to 
establish branches in foreign countries ? 

46. In what ways will the federal reserve banks be of service in 
controlling the international flow of specie? Of what practical 
importance will this be in time of crisis ? 

47. Define certificates of deposit; time deposits; open accounts. 

48. What is the reason for ruling that time deposits, etc., shall 
be only those which may not be withdrawn within 30 days ? 

49. Do you consider it a wise provision to distinguish between time 
aiid demand deposits and to require a lower reserve for the former ? 


50. Do you believe that the ruling that savings accounts shall be 
kept in separate ledgers, or at least grouped so as to be readily dis- 
tinguishable from checking accounts, is wise ? 

5 1 . What is the purpose of the gold clearance fund at Washington ? 
How was it accumulated ? 

52. The federal reserve bank in Chicago owes the federal reserve 
bank in New York $10,000. Make the necessary changes in the 
accounts of the gold clearance fund to effect a settlement. 

53. With the federal reserve bank of Chicago acting as a clearing- 
house for its members, explain how a check on a bank in Detroit 
which is presented to a bank in Milwaukee would be collected. 

54. Give the probable collection route under the old system of a 
check drawn on a bank in Kankakee, Illinois, which is presented for 
collection at a bank in Springfield, Massachusetts. What would be 
the probable route with a system of interdistrict collections under the 
federal reserve system? 

C. Relation of the System to Other Banking Institutions 

1. Do you think that the conditions of admission of state banks 
to the system are favorable to the state banks ? 

2. If a state bank is admitted, does it cease to be a state 

. 3. Why is the Federal Reserve Board so anxious to have the 
state banks enter the system ? Are you convinced that they ought 
to join the system ? 

4. Do you consider the objections to the entrance of state banks 
into the federal reserve system which are raised in selection No. 163 
sound ? 

5. Do you feel that the attitude of the small state banker toward 
furnishing statements is a fortunate attitude ? 

6. Is there any good reason why we should have two systems of 
banking — state and national? -What was the origin of this dual 
system ? 

7. Why should not national bank regulations be modified to meet 
the requirements of small towns and agricultural districts, and then 
have the entire system placed under federal control ? 

8. Why not abolish all national banks and have only state bank 
systems ? 

9. Do you find from an analysis of the provisions of the new 
banking law of New York evidence that the federal reserve system 
is substantially modifying the character of state bank legislation ? 

10. Is it your belief that the New York law has had a counter- 
effect upon the federal reserve system ? If so, in what connection ? 


11. Do you see any reason why the national banks should not 
exercise the functions of trust companies? Do you see any reason 
why they should ? 

12. What is the underlying reason for attempting to give to 
national banks trust-company powers ? 

13. Do you think that the attempt to unite the various types of 
banking operations in a single institution is wise ? Is it in accordance 
with the modern tendency toward specialization ? Is it more needed 
in country or city banks ? 

14. If "department-store banking" is developed, what elements 
of danger must be carefully safeguarded. 

15. Do you look to see many years of controversy between 
national and state institutions as a result of the federal reserve system ? 

16. What do you expect will be the final outcome of such a 
struggle ? 

17. There is a very great deal of hostility to the federal reserve 
system on the part of both member and non-member banks. Some 
of the more important objections are as follows: (a) "Rediscount 
privileges of little value''; (b) "too much red tape"; (c) "Object to 
duplication of expense for examinations and reports"; (d) "Too 
many restrictions oh loans" ; (e) "Object to no interest on deposits"; 
(/) "Object to clearing and collection feature." 

(i) To what extent are these objections vital ? 

(2) To what extent are they merely incidents of any change in 
methods ? 

(3) Can the system fairly be judged bad or good until it is tested 
by a crisis ? 


A. The Loan Sharks 

1. Why have treatises on banking usually given little or no atten- 
tion to banks other than commercial banks ? Is it because commercial 
banks alone furnish media of exchange, or because they serve mainly 
the interests of big business ? 

2. Why has there been so little organization of banking facilities 
for the small borrower ? Is it an unprofitable business ? 

3. Why is there so strong a feehng against "loaning agencies" ? 

4. Why cannot competition be relied upon to insure reasonable 
rates to the "little borrowers" ? 

5. What is meant by usury ? Do you believe in usury laws ? 

6. Why does the maximum interest thiat may be charged vary 
so widely in different states ? 


7. In view of these maximum rates, how is it possible for the loan 
sharks to charge the enormous rates they do ? 

8. Judging from the uses to which the funds borrowed from loan 
agencies are put, would you say that higher rates than those made on 
conunercial paper are justified ? 

9. What is the security back of a loan made to a laborer who uses 
the money to pay debts incurred by illness ? Is character or property 
the more important element here ? 

10. Are most of the loans made by the loan agencies for consump- 
tive purposes ? 

11. Which type of agency that is working for remediation do you 
think is based on the soundest principles ? 

12. Do you believe that philanthropic loans will in the long run 
lead to the most desirable results ? 

13. Do you consider the security offered under the Morris plan 
ample ? What rate of interest is charged ? 

14. "'Character' loans are safely possible only among a stable 
and frugal population, entirely non-speculative, and steadily engaged 
in some regular avocation which the people thoroughly understand 
and which they expect to follow." Do you agree ? 


B. Co-operative Institutions 

1. What principles of the credit union do you consider strongest ? 

2. Do you believe in the principle of one-man-one- vote ? 

3. What is the point to having a club or other organization as 
the basis of membership ? 

4. Why is it important to make the par value of shares only 
$S . GO ? to limit the number of shares held by one person ? 

5. Is the savings feature of the credit imion as important as the 
loaning feature? 

6. Why are not directors and oflScers permitted to borrow from 
the union ? 

7. Is the credit union engaged in making commercial, investment, 
speculative, or consumptive loans ? (Note the duration provisions in 
this connection.) 

8. Is the security for loans ample ? Is it primarily character or 
property security ? 

9. Why can credit unions loan at lower rates than independent 
loaning organizations? 

10. Which do you regard as of greater importance, the direct or 
the indirect benefits of the credit unions ? 

11. Do you see any reason why such organizations should not 
be extensively developed in the United States ? 


C. Building and Loan Associations 

1. Do you think that the principle underiying the original building 
and loan association was sound ? 

2. What was the advantage of the share system over mere 
monthly instalments ? 

3. Does each man in the end fully pay for his own home under 
this plan ? 

4. What sources of profit were there for these early associations ? 

5. How was it determined who should first have the opportunity 
of building ? 

6. Do you think that the premium system is wrong in principle ? 

7. What determines the rate of interest on loans ? 

8. When an association attracts depositing members, whose funds 
are loaned to borrowers, is not the function performed very similar 
to that of an ordinary savings bank ? 

9. What is the security back of the loan under the building and 
loan system ? Do you consider it ample ? 

10. Is such a loan for investment, commercial, or consumptive 
purposes ? 

11. What was the purpose of the serial association? What are 
its advantages as compared with the terminating plan ? 

12. What are the practical advantages of tiie permanent plan? 
What disadvantages can you discover ? 

13. What is the purpose of the reserve fund ? 

14. Provided the "national" associations were honestly con- 
ducted, could they be as satisfactory as the "locals"? 

15. Does the building and loan association resemble a savings 
bank more than a commercial bank ? 

16. How does it differ from the credit union in purpose and 
method of organization ? Would you say that it is a true co-operative 
institution ? 


A. Short-Time "Commercial'' Credit 

1. For how long a period have we had an agitation on the subject 
of rural credit ? 

2. Do you beUeve that the greenback and free-silver movements 
as well as the paper-money schemes of Colonial days were due to the 
same general causes as the present farm-credit agitation ? 

3. Is the emphasis on credit in the present agitation evidence of a 
growing recognition of the difference between lack of money and 
lack of capital ? 


4. Which do you think is more important to the farmer, short- 
time loans or long-time mortgage loans ? Do you think that the need 
for mortgage credit was formerly any greater than it is today ? 

5. In your opinion have the commercial banks given as much 
attention to the farmer as to the merchant and manufacturer ? 

6. "You may say all you please about the town bank or the 
small village bank being a friend of the farmer. I have been there, 
and can talk right off the bat on that subject. In connection with 
our mortgage business, my partner and I estabUshed what is to this 
day known in Minnesota as the State Bank of Sleepy Eye. When 
we started that bank there were about 100 people in the town. We 
were mighty glad to have the farmer's business. He was a great friend. 
But as the town filled up with merchants and business men we found 
that the money which the farmer was depositing was really going to 
the merchants. It was quite natural. The merchant was our next- 
door neighbor, both in business and socially. He could reciprocate 
by sending us a new customer most every day, and in other ways he 
could reciprocate, whereas the farmer could not. And the personal 
contact was such that it was natural; we found our business, the 
farm business as it began, finally growing into a town and city busi- 
ness. I always regretted that it was so, but that was the fact, and I 
saw it in other places as well as our own '' (statement of S. D. Scudder, 
at Hearing on Rural Credit, 1914). Does this seem to you a likely 
situation in many cases ? 

7. What provisions of the national banking law have been detri- 
mental to agricultural interests ? On the whole, do you believe that 
the regular banks have been in a position to care adequately for the 
short-time needs of farmers ? 

8. When a bank makes loans to a farmer to purchase seed and 
fertilizer, and to pay for hired help during the growing season, is it 
making what is equivalent to a commercial loan? What is the 
security for such a loan ? Is any mortgage required ? 

9. When a loan is made to a farmer for the purpose of buying 
cattle to feed for a season and then sell, what is the security ? 

10. If a farmer borrows from a bank in order to purchase farm 
machinery, such as plows, harrows, and harvesting machines, would 
you say that he is getting an investment or commercial loan ? How 
long a time should such loans run ? Should collateral be required ? 

11. Are the risks inherent in the nature of, the industry greater or 
less in farming than in manufacturing or mercantile lines — that is to 
say, is a good crop more or less certain than good sales by a merchant 
or manufacturer ? 

12. Do you regard the farmer as a rule personally as good a 
credit risk as the average merchant or manufacturer ? 


13. "If you would sit down with the average farmer in the spring 
and figure out the actual amount necessary to carry him through 
until fall, and say: 'Here, Bill, is the cash; you take it and pay it 
out as you need it,' I will gamble dollars to doughnuts that in sixty 
days he would have spent it all, and 90 per cent of the amount would 
be invested in things he never intended to spend it for, and he would 
be just as inconsiderate in paying it back promptly when due as he 
was in spending it, and that is just the reason Bill has to pay the 
price for his accommodation." Do you consider this a fair statement ? 

14. "I think that the farmer gets his money as easily and as 
cheaply as the commercial man; you will find 8 per cent country is 
8 per cent country for everybody. Bankers have, commercially 
speaking, no preference, for 8 per cent looks alike to them no matter 
who pays it, as long as they really get it." Do you think that this 
is true ? 

15. What is the relation of tenant farming to the rates of interest 
for farm loans ? 

16. Do you beUeve that the one-crop system has been a prevalent 
cause of poor credit in this country? 

17. Does it seem to you that on the whole the farmers have paid 
exorbitant rates for short-time loans ? 

18. What is the bearing of the size of loans upon the rate of interest 
charged ? Has this militated against the farmer ? 

19. Is the store-credit system economically justifiable ? 

20. Which of the plans of improving farm credit that are outlined 
in selection No. 182 do you regard as best? Do you think that 
such plans would appreciably improve the credit risk of a group of 
farmers ? 

21. Is the plan of the Jewish Agricultural and Industrial Aid 
Society the same as the credit union discussed in the previous chapter ? 
In what way has this particular credit union an advantage? Do 
you think that such unions would prove generally successful in the 
typical American rural community ? 

22. Is it necessarily true that the government can make loans 
more cheaply than private institutions ? 

23. Is it necessary for the government to go into the banking 
business in order to force private companies to grant reasonable rates ? 

24. If Congressman Bathrick's argument as to the great savings 
to be effected by government loans is true, would not it logically 
follow that the government should undertake all business and thereby 
effect incalculable savings to the people as a whole ? 

25. "Not only does direct financial assistance by the state tend 
to demoralize the individual, but in the long run it also dries up the 
sources of credit." How? 


26. "The chief difference of opinion arises over whether there 
should be special aid furnished by the government. There seems to 
be no emergency which requires or justifies government assistance to 
the farmers directly through the use of the government's cash or the 
government's credit. The American farmer is sturdy, independent, 
and self-reliant. He is not in the condition of serfdom or semi- 
serfdom in which were some of the European peoples for whom govern- 
ment aid was extended in some form or other during the last century. 
As a matter of fact, the American farmers are more prosperous than 
any other farming class in the world. As a class they are certainly 
as prosperous as any other great section of the people — ^as prosperous 
as the merchants, the teachers, the clerks, or the mechanics. It is 
necessary only that the government, so far as geographic and physical 
conditions permit, provide/ machinery for the benefit of the agricul- 
tural classes as satisfactory as that provided for any other class." 
Do you agree with this general principle ? 

27. Do you agree with Kemmerer's analysis on pp. 367-68 as to 
the reasons for the relative backwardness of the United States with 
regard to agricultural credit ? 

28. So far as short-time credit is concerned, do you feel that some 
very vital reforms are necessary ? If so, what ? 

B. Long-Time Investment Credit 

1. How do you account for the wide variations in the rates on 
farm-mortgage loans that exist in the United States ? 

2. "I want somebody to tell me why a mortgage down in Texas, 
where they ask 8 per cent, which has sufficient security for the money 
at 8 per cent; why a mortgage in Washirigton, where they ask 10 and 
15 per cent, which has sufficient security for the 15 per cent, is not 
just as much entitled to a uniform low rate of interest as a mortgage 
in Pennsylvania or Ohio or anywhere else ? The security is good and 
that is the primary thing to consider. No one would lend at any 
per cent on bad security. You cannot produce uniform rates and 
carry the national policy out all over the country by any other 
process than government loans." What is your opinion of this 
statement ? 

3. "The difference in the rate of interest paid by the Texas 
farmers and those of foreign countries in twenty years would macad- 
amize every road in Texas." Does this indicate that the farmers of 
Texas should be granted loans at 3 or 4 per cent ? 

4. "Money cannot be made cheap by law ol: any other artificial 
means. It will flow naturally into the channel most advantageous 
to its owner. It cannot, therefore, be cheap where the demand 


exceeds the supply. Foreign credit systems have the advantage 
that money is normally cheap, the result of centuries of accumulations. 
The systems of rural credit proposed may make money cheaper by 
improving the security on which it is loaned, but they cannot perform 
the miracle of making it absolutely cheap" (editorial in National 
Stockman and Farmer, 1914). Is this good economic doctrine ? 

S- "The whole trouble with land credit conditions today — and 
that means the dearth of money, the rate of interest, and so on — is 
nothing but the consequence of an insufficiency of market for the 
security which the farmer offers, and the reason for this insufficiency 
of market is not only the form in which farm loans are usually offered, 
not only the variety of laws governing the business, but also the 
variety of other securities, with which the American market is clogged, 
quite in contrast to the European market, which is comparatively 
free from municipal and railroad and also some classes of public- 
utility securities." What do you think of this contention ? 

6. What items other than interest go to make up the inclusive 
cost of mortgage loans? Is there needless expense in any of these 

7. "My observation is that the condition of the farmers and their 
credit is largely the fault of the real estate agent and speculator, for 
the reason that when they sell a man farm land, they sell him more 
than he can ever pay for, strip him of all cash on the first pay- 
ment, leaving him without any working capital, with soil that has 
to be tamed to cultivation and with additional payments falling 
due on his land each succeeding year." Is there truth in this 
statement ? What bearing has the method of surveying upon this ? 

8. "Doubtless you all remember having seen a picture of a 
' gnarled hand hanging over an humble farm cottage as a horrid sym- 
bol of the dead pledge or mortgage. I believe that this popular idea 
of the mortgage has changed during the past generation. The 
average intelligent progressive farmer now regards the farm mortgage 
as a blessing, at least in retrospect." Do you agree ? 

9. Is there any more sympathy due a farmer who mortgages some 
land as a means of adding to his working capital than is due a rail- 
road company that issues bonds and gives a mortgage on the railway 
property ? 

10. For what purposes, in fact, are the majority of farm mortgages 
contracted ? 

11. Do you agree with selection No. 191 as to the legitimate 
purposes of farm mortgages? 

12. Do you think Siat there is much truth in the contention of 
Rogers in selection No. 190 ? Do the facts as to rates on loans where 
diversified farming is practiced bear him out ? 


13. For how long should farm-mortgage loans run as a rule? Is 
there any justification for three- and five-year loans, which are the 
common form ? 

14. Enumerate the advantages of mortgage bonds. 

15. As an investor would you prefer a farm-mortgage bond or a 
direct mortgage ? In practice is there likely to be any difference in 
rates as between direct mortgages and mortgage bonds ? 

16. What are the advantages of the amortization loan? 

17. In the case of an amortization loan, as the date of maturity 
approaches the more ample becomes the security. How ? 

18. What practical difficulties do you see in the way of the intro- 
duction of co-operative loaning agencies among farmers? How do 
conditions differ from those in Europe ? 

19. Do you see any weaknesses in the Wisconsin rural credit 
system ? Do you consider such a system a substantial improvement 
over the old unorganized system of mortgage borrowing ? 

20. Does the Wisconsin law do anything to improve the credit 
risks of farmers ? 

21. Should the situation be cared for primarily through state or 
through national legislation? 

22. Outline the important points in the Federal Rural Credit bill 
which became a law on July 17,1916. 

23. "Every community should be financially self-sufficient. 
Those who wish to borrow should be able to borrow from people in 
the community who have funds to loan. Banks should endeavor 
to bring these parties together." Do you agree with this principle ? 
Is it always possible to work it out in practice ? 


A. Savings Banks 

1. How do you distinguish between a savings bank and a bond 
house ? 

2. What appears to have been the earliest t)^e of savings in- 
stitution ? 

3. Which is the most important type at the present time ? 

4. How do the mutual and stock savings banks differ from the 
various types of co-operative associations discussed in the previous 
chapter ? 

5. What is the significant difference between the mutual and the 
stock savings banks ? 

6. Which form of savings bank — stock or mutual — do you think 
is the better ? 



7. Is there any essential difference between the two so far as 
everyday practical operations are concerned ? (Compare statements 
as to character of assets and liabilities.) 

8. Do you regard the guaranty savings bank as superior to the 
strictly mutual and strictly stock savings banks ? 

9. Do depositors in a mutual savings bank get a higher rate of 
interest (dividends) than those in a stock savings bank by virtue of 
the fact that no earnings need be paid the shareholders, who own 
the stock savings bank? 

10. How do you account for the fact that the stock savings bank 
prevails in the West and Middle West and the mutual in the East? 

11. How do the interest rates paid to depositors in mutual banks 
compare with those to depositors in stock savings banks ? 

12. How large a reserve is kept, by the mutual savings banks of 
the United States ? by the stock savings banks ? 

13. Compare the percentage of loans to bond and stock invest- 
ments in both the stock and the mutual savings banks. 

14. Which way of using the funds of a savings bank do you con- 
sider preferable, in purchasing bonds and stock or in making loans ? 

15. Do you think that the security for the loans of savings banks 
so far as is indicated by the statements given is reasonably safe? 
Is it reasonably liquid ? 

16. Do you believe that the purchase of bonds is any more 
satisfactory than the making of loans on collateral ? 

17. Study the investment requirements of the New York savings 
bank law, and then compare the nature of the investment stock sav- 
ings banks for the United States with these requirements. 

18. Do many savings banks conduct a regular commercial bank- 
ing business ? 

19. What are the arguments in favor of allowing national banks 
to conduct a savings business ? 

20. Is there any danger in the practice if the savings accounts 
are kept separate from, and handled on different principles than, the 
commercial accounts? 

21. Is there a greater need for careful regulation of savings than 
of commercial banks ? Are they on the whole as well regulated ? 

22. Do you gather from^ the data presented in the readings that 
there is ordinarily a wide niargin between the rates paid depositors 
and the rates which the savings banks receive from the investment 
of funds ? 

23. Should savings banks adopt the principle of "safety first"? 

24. Why is liquidity of assets an important factor with savings 
banks so long as they reserve the right to demand 30 or 60 days' 
notice of withdrawal of funds ? 


25. Do the savings banks like to enforce the notice of withdrawal 
option ? Does it tend to hurt their credit ? 

26. Are the savings banks tending to create in effect demand 
obligations? If so, is there any reason why they should not be 
subjected to the same reserve regulations as the commercial 
banks ? 

27. Would it not be an advantage from the standpoint of the 
system as a whole if the savings banks in time of stress would enforce 
the 60-day notice rule, and not endeavor to sell securities in an 
already stagnant security market ? In fact, would it not be wise for 
them to purchase at such times collateral offered for sale by the 
commercial banks ? 

28. Does the greatest value of the savings bank lie in its stimulus 
to thrift ? 

29. Do you regard the school savings bank system as meritorious ? 
What advantages has it over any other form of savings banks ? 

30. Were the postal savings banks vitally needed by the laboring 
classes ? 

31. Do you think they compete at all with the regular savings 
banks ? 

32. Why is a. maximum fixed for the amount of any individual 
deposit ? Do you think that the maximum is too low ? 

33. What is the purpose of having depositary banks for postal 
savings deposits ? 

34. What is the purpose of permitting investments in postal 
savings bonds ? Do they not bear too low an interest rate to make 
them attractive ? 

35. What is your opinion of the plan for municipal savings 
banks ? 

36. Practically speaking, is there need for additional or better 
savings facilities in the cities with which you are familiar ? 

37. Do you regard the life insurance company as essentially a 
savings institution in the case of endowment policies ? 

38. In the case of ordinary life policies is tfie effect the same even 
though another person receives the insurance ? 

39. What differences do you find between the character of 
investments of insurance companies and savings banks? 

40. Does the chief difference between a savings bank and a com- 
mercial bank lie in the fact that one creates demand and the other 
time deposits ? Or that one creates media of exchange and that the 
other does not ? Or in something else ? 

41. Do you believe that the economic functions performed by 
savings banks are any less important than those performed by 
commercial banks? 


B. Investment Banks or Bond Houses 

1. How does a bond house differ from a savings bank? Are the 
underlying economic functions performed practically identical? 

2. Do you understand that the "houses of first purchase" buy 
the bonds outright ? 

3. Are all classes of issues handled in this way ? 

4. What factors govern the price such houses will pay for an 
issue of securities ? (Study the diagram on p. 439.) 

5. Do you find that the analysis of bond values is similar to that 
of a borrower's statement ? Would you say that the credit granted 
is based on confidence ? 

6. Which is the most important side of the triangle in the diagram 
on p. 439 ? Which is the hardest to ascertain or gauge ? 

7. Does it appear to you that the problem of the investment 
banker in analyzing credit is any less difficult than that of the com- 
mercial banker? Are the problems very similar? Does the fact 
that the individual purchases of a bond house are so very large have 
any bearing on this question? 

8. Do the underwriters also actually buy the bonds they handle ? 

9. Is the function of the underwriter purely that of a risk-taker ? 
Do you believe that the taking of such risks warrants a profit such 
as tliey receive? What force is relied upon to prevent excessive 
profits ? 

10. How does the function of the "house of distribution" differ 
from that of the underwriter ? 

11. Do the "houses of distribution" directly invest their own 
capital in bonds ? 

12. What sort of people are represented by the small circles 
outside the "houses of distribution," as shown on p. 429? 

13. Are these outside groups anything more than selling agencies 
for the "houses of distribution" ? 

14. To what classes of people or institutions do the "houses of 
distribution" sell bonds most largely? 

15. Is the advertising feature an important aspect of bond-selling ? 
Does each of the groups of bond middlemen engage m advertising ? 

16. Which of the functions of a bond house do you regard as 
most important? Which requires the greatest intelligence and 
judgment ? 

17. What sort of loan would you say would be the most difficult 
to appraise ? 

18. Why should the issues of industrial corporations, mining or 
irrigation companies, be eliminated ? How do such companies place 
their issues ? 


19. Is the principle of discarding the issues of companies that 
conduct a kind of business unfamiliar to bankers sound? Should 
not the bankers make themselves familiar with such businesses ? 

20. How much moje than the amount of the bond issue should 
the equity of the company in the property be ? Why is it wise to 
require equity at least equal to the amount of the issue ? 

21. Do you think that an earning capacity of at least 50 per 
cent more than fixed charges is ample ? 

22. Are engineers and accountants and attorneys quite as impor- 
tant as financial experts ? 

23. What are the broad social or economic effects of scientific 
and conservative bond analysis ? 

24. Do you see any real objection to "construction companies" ? 

25. Do you regard the advisory function as of particular im- 
portance ? 

26. What is the chief purpose of the banking department of a 
bond house ? Is it legitimate for bond houses to engage in a regular 
banking business? 

27. "The loaning of funds to purchasers who have not suflScient 
money to pay for a bond in full is as much of an accommodation 
to the bond house as to the purchaser." Do you agree ? 

28. Is it a good plan for an individual to borrow funds with which 
to make part payments on bonds ? 

29. How does a bond house act as fiscal agent and precisely 
what would ft do in this capacity ? 

30. Does the selling of bonds require a high order of skill ? 

31. Why do bond houses like to have young college men for such 
work ? Why are young college men attracted to the field ? 

32. Do you feel that the protective function is an important one ? 
Can the bond houses guarantee the investment ? What would hap- 
pen to the rate of interest if they should ? 

33. Judging from the amount of business handled, do you think 
that the commercial bank is any more important than the investment 
bank ? 

34. Are the economic functions performed by commercial banks 
any more significant or important than those performed by investment 

A. Investment Operations of '^Commercial'' Banks 

1. Enumerate as many types of financial institutions as you can. 

2. Do you regard the stock exchange as a financial institution ? 
What is its function ? 


3. What is the reJation of the stock exchange to the bond house ? 

4. Do the "commercial" banks deal in stock-exchange securities 
primarily in the form of investments or as collateral ? 

5. When collateral loans are made, as in case No. i (selection 
No. 216), are the funds used for commercial purposes? Upon what 
does the liquidity of the loan depend ? Do you feel that there is no 
element of danger in such loaning ? 

6. When an underwriting house hypothecates its securities pend- 
ing sale and obtains a loan, is this not very similar to a short-time 
commercial loan ? Is there a larger element of speculation than in 
the case of a merchant who buys goods for sale ? 

7. Do you agree with Hollander's analysis of the desirability of 
such loans ? 

8. To what extent do- the "commercial" banks make direct 
investments in stock-exchange securities? What are the purposes 
of such investments ? Are they liquid ? Are such uses of the banks' 
funds commercial in their nature ? 

9. In what ways are such loans harmful to the business world ? 
In what way are they harmful to the banks ? 

10. When a bond house or stock broker has blocks of securities 
on hand pending sale, is such institution not in as good a position to 
secure a loan as a merchant with an unsold stock of goods ? Why is 
collateral required in the former and usually not in the latter case ? 

11. How do you account for the tremendous amount of specula- 
tive purchases of stock-exchange securities in New York ? 

12. What is the effect of the accumulation of idle funds in New 
York upon: (a) money rates? (b) business stability? 

13. What classes of loans made by our "commercial" banks do 
you regard as purely commercial ? 

14. How do you define a genuine commercial loan ? 

15. Are all loans that are made with collateral devoted to either 
investment or consumptive uses ? 

16. Are collateral loans ordinarily any less liquid than commercial 
paper loans ? Are they in time of stress ? 

17. Wheii a merchant submits his statement to a bank showing 
that his quick assets are, say, 2^ times his current liabilities, and the 
bank grants him a loan on his promissory note, does the bank stipulate 
to what uses the borrowed funds shall be put ? 

18. Do you think that such loans are, in fact, very often devoted 
to investment uses ? 

19. If devoted to long-time investment uses, how can they be 
paid in 3 months ? 


20. Are such loans likely to be renewed at date of maturity ? If 
they are repeatedly renewed, are not the "conunercial" banks in 
fact lendinjg permanent capital to industries ? 
' 21. It has been stated that in the larger cities as many as 40 
per cent of the loans. are renewed at maturity. Is this probably due 
to the investment character of such loans ? 

22. Banks usually require that a customer settle his account 
entirely at least once a year. How is this possible if the borrowed 
funds have been put to investment uses ? Do you suppose that the 
customer might borrow from Bank B to settle with Bank A ? If he 
does, has there been a real liquidation so far as the systeim as a whole 
is concerned ? 

23. Do you think that real commercial loans are liquidated from 
the standpoint of the system as a whole ? (Refer back to Questions 

37-41, p. 43.) 

24. What alternative has a business house to borrowing from a 

"commercial'' bank for constructive purposes? What advantage 
has this latter method of finance ? What disadvantage ? 

25. What is meant by selling goods on "open account" ? What 
is the purpose of so doing ? 

26. "Before the Civil War the trade draft was the common form 
of expressing indebtedness between dealers in the United States, just 
as it is in England today. But during and since the Civil War we 
have developed away from that practice." How do you account for 
the change ? (See selection No. 103, Part I.) 

27. A, a wholesaler, sells goods on 3 months' time to B, a retailer, 
and draws upon him for the amount. In what way may this draft 
be used as a basis of credit at the bank ? Describe the process if a 
promissory note were used instead of a draft. Describe the process 
when A sells on open account and B pays cash in 10 days. 

28. Is there any particular advantage in the draft over the 
indorsed promissory note as a basis of credit at a bank ? Cannot a 
bank tell by names on the paper whether the paper is backed by an 
actual trade transaction ? Does the draft have any advantage over 
the note in this regard ? 

29. When a merchant borrows from a bank on his own promissory 
note, what, in fact, is the security for the loan? Suppose that he 
turns over to the bank notes of customers as collateral, is this any 
better than open-account security ? 

30. Is the merchant who buys on open account and "takes 
advantage" of his cash discounts a better credit risk than one who 
does not take the discount for cash ? 

31. Do you believe that there is a greater credit inflation with the 
system of discounting notes and drafts than there is where each in 



the chain of middlemen pays cash, borrowing from his bank on his 
direct note when in neecj? Answer this question, first, on the assump- 
tion that the funds borrowed on direct note are used for commercial 
purposes only; secondly, that they are used in part for investment 

32. Is the objection to one-name paper that under all conditions 
it means poorer security, or that it does not bear on its face evidence 
that it is of a commercial nature ? 

33. Merchant A borrows from his bank, giving his promissory 
note. His statements show a large amount of accounts receivable 
and few notes or bills receivable. Merchant B borrows from his 
bank, giving instead of his own note some notes of his customers 
which he indorses ? Other things being equal, would you prefer as a 
banker to loan to A or to B ? 

34. What is meant by the statement that "commercial banks 
have become investment banks" ? 

35. Is there any objection to their becoming investment banks 
if they cease to be commercial banks ? if they divide the two types 
of business into separate departments? Wherein lies the danger, 
in fact ? 

36. Is there any more danger in the commercial banks making 
loans on real estate security than on industrial securities ? Which is 
more liquid: (a) ordinarily ? (6) in time of stress ? 

37. Do you think that the rapid expansion of loans and deposits 
from 1897 to 1907 was to a considerable extent due to the making of 
investment loans? (Refer back to selection No. 78. See, also. 
Reports of Comptroller of Currency for data on increase of loans on 
collateral and for direct investments in securities during these years.) 

38. What is the effect of such a loaning policy upon industrial 
expansion ? upon the economic crisis and panic ? 

B. The Federal Reserve System and Investment Operations 

1. Why is it believed that there will not be so much money avail- 
able for stock-exchange speculation under the federal reserve system ? 
(Compare reserve requirements under the old and the new law, 
selection No. 104.) 

2. What factors will determine where the optional portions of 
bank reserves will be held ? 

3. What ^ funds other than legal reserve funds are available for 
call loans on stock-exchange securities ? 

4. Do you consider it probable that call rates will average higher 
in the future than in the past ? 


5. Is the payment of interest on deposits of out-of-town banks 
forbidden by the Federal Reserve act? (Will the federal reserve 
banks pay interest on the deposits of memofer banks ? 

6. Does it seem to you probable that the increased loaning power 
given to national banks by virtue of lowered reserves can be promptly 
utilized in the making of genuine commercial loans? Upon what 
does increased commercial business depend ? 

7. Are the low interest rates that go with large reserves conducive 
to the use of bank funds for investment or "constructive" purposes? 

8. Consider the present situation (that is, during the years 1915 
and 1916) from the standpoint of the economic cycle (selection No. 
74) . In what stage of the cycle are we now ? 

9. What safeguards has the new system that were not found with 
the old ? Is centralized banking less likely to lead to inflation than 
decentralized ? (See selection No. 8.) 

10. What is the relation of a " discount market " to stock-exchange 
speculation ? 

11. "There are two ways in which the law may discriminate 
against investment loans: directly, by forbidding individual banks 
to make such loans, and indirectly, by giving the preference to com- 
mercial securities when it comes to tibe matter of rediscounting." 
Enumerate the provisions of the Federal Reserve act as to each 

12. Which of the foregoing do you regard as the more effective 
and certain means of repressing investment operations ? Which do 
you think more practicable ? 

13. What is meant by "commodity paper"? Is it commercial 
in its nature ? 

14. Are acceptances growing out of exports and imports of 
commercial origin ? 

15. Why has the main controversy arisen in connection with the 
availability of one-name paper for rediscount ? 

16. What does the Federal Reserve act, itself, say on the 
subject ? 

17. Is the conclusion tenable that while single-name paper may 
be acceptable "there must be no doubt about the use of the proceeds 
for strictly commercial purposes" ? 

18. Do you think the test that the concern getting the loan be 
engaged in an actual commercial business and be in a liquid condition 
is a satisfactory one ? How does this differ from the current practice 
of loaning so long as the ratio of quick assets to current liabilities is 
satisfactory ? 

19. Does the Federal Reserve Board recognize the principle that 
"commercial" funds may safely be put to investment uses if the 


firm using them has a reasonable excess of quick assets over current 
liabilities ? 

20. How is the nature of the use to which the borrowed funds 
are put to be determined in the case of single-name paper ? Do you 
believe that such regulations are likely to cause much annoyance to 
the typical banker? 

21. Do you regard the provision that paper to be eligible for 
discount should run for only 90 days or less as sound ? Why ? Are 
there any exceptions ? 

22. Do you think that the percentage of single-name paper that 
is rediscounted should be kept at a minimum ? 

23. What is the purpose of the 6 months' agricultural paper? 

24. In what way is the federal reserve system attempting to 
change the methods of transacting American commercial business ? 

25. How does a trade acceptance differ from a "bank acceptance" ? 
from a "domestic acceptance" ? from a "foreign acceptance" ? 

26. Does it bear on its face evidence of its arising out of a com- 
pleted trade transaction ? 

27. When rediscounted by a federal reserve bank, how many 
names does such an instrument bear ? 

28. How does the use of the trade acceptance give a seller of 
goods additional credit facilities with his bank ? 

29. Is there necessarily any advantage in eliminating open 
accounts ? 

30. How soon does the seller get his money with, say, a 60-day 
trade acceptance ? Where does he get it ? 

31. Do you think that the use of the trade acceptance will mean 
cheaper credit extension in general ? 

32. Will the trade acceptance tend to diminish materially the 
use of commercial funds for investment purposes ? 

33. On the whole, do you believe that the provisions of the 
Federal Reserve act eliminate the worst results of flie confusion that 
has heretofore existed with reference to the legitimate uses of com- 
mercial funds ? 

C. Financial Concentration and Control 

1. Is the problem of a money trust peculiarly a modern problem ? 
(See selection No. 236.) 

2. Do you find evidence in selections Nos. 106, 127, 135, and 137 
in Part I, and 127 and 128 in Part H, that there has long been in this 
country a widespread distrust and fear of the "big financial interests" ? 

3. In what respect does the present problem of financial control 
differ from former problems of the kind ? 


4. Is it any nearer the truth to say that railroads and industrial 
combinations are dependent upon the investment banker than that 
the investment business depends upon the opportunity to market 
corporate securities ? 

5. When did the era of corporate industry really begin in the 
United States ? the era of railroad consolidation ? the era of indus- 
trial consolidation ? of banking consolidation ? 

6. Do you think that the concentration of banking caused the 
concentration in industry, or vice versa ? 

7. Do you believe that it would be possible to conduct modern 
business without banks, both commercial and investment, of huge size ? 

8. What are the underlying causes of large-scale industry in 
general ? Are the same forces operative in the banking field ? 

9. How many types of financial interests appear to be more or 
less afl51iated in tfieir common interests ? 

10. Define or explain: interlocking directorate, voting trustee- 
ship, exclusive financial agency. 

1 1 . How many separate steps are there in the marketing of bonds ? 
Which step performs the most important function ? 

12. In what ways is it suggested that the investment banker 
controls: (a) the organization of corporations? (b) the financial 
policy of companies once organized? (c) the sellers of securities? 
(d) commercial banks, trust companies, and life insurance companies ? 

13. In what way is it said that the investment bankers control 
the golden eggs laid by other people's geese? Does this differ from 
any transaction involving the use of borrowed funds ? 

14. Do not banks which accept savings deposits wield the capital 
of others quite as much as does the investment banker ? 

15. Is the difference between the investment banker and other 
financiers one in kind or merely in degree ? 

16. Are not the investment bankers merely using their credit 
when, with a comparatively small capital, they control vast resources ? 

17. Do you see anytiiing vicious in the investment bankers' 
having their cake and eating it too ? Can you think of any similar 
performances on the part of relatively small financial or business 
interests ? 

18. Concretely, in what ways may the "Money Trust" do eco- 
nomic injury to the country ? 

19. Do you consider it an adequate answer to charge that "con- 
centration" in New York is due to our antiquated banking system? 
to economic forces? If to the latter, why should one mention the 

20. Granted that the evolution of the financial concentration has 
been "natural" or inevitable, does this dispose of the problem? 


21. Do you think it possible for a group of large financial inter- 
ests to charge what rates they please for money ? Can they charge 
more to some people than to others ? 

22. Are not the interests of financiers and the people identical 
in that without general business prosperity the operations of the 
financiers would be impossible ? 

23. Do you agree that the investment bankers could have no 
possible motive for causing a panic in 1907 or at any other time ? 

24. In view of your previous study of the economic cycle and 
the history of the panic of 1907, does it seem to you likely fliaf that 
panic was "engineered" by the interests? 

25. Do you think that it is necessarily "preposterous" to suppose 
that an interlocking director may have full control of the policy of a 
company ? substantial control ? Why ? 

26. In your opinion is it likely that credit has often been refused 
to deserving borrowers merely because such borrowers were com- 
petitors of enterprises in which the investment bankers themselves 
were interested ? What is to prevent such a practice ? 

27. Have you known of cases in small towns where the banker 
has refused loans to those who were competitors of his in non-banking 
lines ? 

28. Are interlocking directorates necessarily developed for sinister 

29. On the whole, do you believe that there is an effective "Money 

30. Do you feel, with J. P. Morgan & Company, that the public 
can safely rely upon our financial representatives to safeguard our 
interests through peril of deposition as soon as they do not warrant 
our confidence? Concretely, how is the process of deposing those 
whom we no longer trust brought about ? 

31. Can we rely upon competition to insure fair and equitable 
money rates and impartial granting of credit ? 

32. Do you regard the prohibition of interlocking directorates 
by the Clayton act as wise ? 

33. Are there provisions such as will eliminate the control by 
bankers of business enterprises outside the banking field? Is there 
any necessity of doing this ? 

34. Make an outline of selection No. 236, indicating the legiti- 
mate, doubtful, and illegitimate functions that are performed by the 
modern financier. 



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